DIPP has, by way of Press Note 4 dated May 6, 2016 (‘Press Note 4’), permitted 100% FDI in asset reconstruction companies (‘ARCs’) under the automatic route, from the erstwhile 49%, subject to the following key conditions:
i. Earlier, an ARC sponsor was not allowed to hold more than 50% shareholding, including by way of FDI or by routing it through a FII/ FPI controlled by the same sponsor, in line with the existing restriction under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI’). This restriction is proposed to be done away with by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016. Therefore, Press Note 4 provides that the investment limit of a sponsor in an ARC’s shareholding will be governed by SARFAESI;
ii. Permissible FII/ FPI investment in each tranche of security receipts has been increased to 100%, as opposed to the earlier 74%, subject to compliance with RBI’s directions; and
iii. Foreign investment in an ARC is now subject to all provisions of SARFAESI (instead of only Section 3(3)(f)).