The Department of Industrial Policy & Promotion vide press note no. 4(2016 series) dated 6th May, 2016 amended paragraphs 6.2.18.1 and 6.2.18.2of "Consolidated FDI Policy Circular of 2015" with regard to the Foreign Investment in the sector of Asset Reconstruction Companies (ARC).
What is an ARC? An ARC as defined in the FDI policy is a company registered with the Reserve Bank of India under section 3 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(SARFAESI).
The earlier position laid in Para 6.2.18.1of the FDI Policy was that, an ARC could have 100% paid-up Capital (FDI + FPI/FII) out of which 49% could come through automatic route and beyond 49% would come through Government route. After this circular came into effect, the position would be amended to the extent that now the FDI cap would be 100% coming through automatic route. No Government approval shall be required if the investment in ARC by foreign entities exceeds 49%. The subsequent amendments in Para 6.2.18.2 took place which are as follows:-
- Persons' resident outside India, who are Qualified to be investor, can now invest up to 100% on the automatic route in the capital of ARC;
- The investment limit of a sponsor and institutional/non-institutional investors, in shareholding of ARC, will be governed by the SARFAESI Act which is amended from time to time. Earlier, not more than 50% shareholding by way of FDI or routing it through a FPI/FII by a single sponsor was permitted;
- The total shareholding of an individual FPI/FII shall be below 10% of the total paid-up capital;
- FIIs/FPIs can now invest up to 100% of each tranche scheme in Security Receipts (SRs) issued by ARCs, subject to the guidelines of RBI. The earlier limit set for such investment was 74% of each tranche scheme in SRs;
- All the investments shall be done in accordance with the SARFAESI Act, 2002 as amended from time to time.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
