NDA Govt allows 100% ‘automatic’ FDI in ARCs Friday May 06,2016

The Centre has allowed 100 % Foreign Direct Investment (FDI) in asset reconstruction companies (ARCs) under the automatic route. 

The press note in this regard was issued on Friday May 06,2016, Ramesh Abhishek, Secretary, Department of Industrial Policy and Promotion (DIPP), told

So far, foreign investment was automatic only up to 49 %; beyond that government approval was needed. Now, DIPP has said 100% FDI is allowed in ARCs under the automatic route. 

However, some conditions have been set, including the stipulation that the total shareholding of individual foreign institutional investors/foreign portfolio investors must be below 10% of the total paid-up capital. 

Also, FII/FPIs have been permitted to invest up to 100 % of each tranche in security receipts issued by ARCs, subject to RBI directions/guidelines. 

The DIPP has now said that the investment limit of a sponsor in the shareholding of an ARC will be governed by the provision of the Sarfaesi law, as amended from time to time. 

Allowing 100 % FDI would come as big boost for companies which are struggling for funds, as banks refuse to give steep discounts on stressed assets and the ARCs have to make upfront payment of 15 % of the cost of the asset.