The government has raised the cap on foreign direct investment (FDI) in asset reconstruction companies (ARCs) to 74 per cent from 49 per cent. Now no sponsor may hold more than 50 per cent of the shareholding in an  ARC  either  by  way  of  FDI or  by  routing  through  an  FII, said the Reserve Bank of India (RBI) while announcing measures to attract capital inflows to support a depreciating rupee.

The prohibition on investment by FIIs in ARCs will be removed; however, the total shareholding of an individual FII shall not exceed 10 per cent of the total paid-up capital, RBI said.

The limit of FII investment in Security Receipts (SRs) may be enhanced from 49 per cent to 74 per cent of the paid up value of each tranche of SRs issued by ARCs. Further, the individual limit of 10 per cent for investment of a single FII in each tranche of SRs issued by ARCs may be dispensed with. Such investment should be within the FII limit on corporate bonds prescribed from time to time, and sectoral caps under the extant FDI Regulations should be complied with, RBI said.

According to rating agency CARE, foreign investment in ARCs would be crucial. “Given the dynamics in the Indian financial markets and the surge in financial restructuring, this segment is likely be an area of interest for foreign investors. There is also a need for domestic companies to be supported by external funds,’’ it said.

(Edited by Joby Puthuparampil Johnson)

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