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RBI/2005-06/203
A.P. (DIR Series) Circular No.16
November 11, 2005
To
All Banks Authorised to Deal in Foreign Exchange
Madam/Sir,
Foreign Investments in Asset Reconstruction Companies
(ARC)
Attention of Authorized Dealers is invited to
the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident
outside India) Regulations, 2000 notified by the Reserve Bank of India vide
Notification No.20 dated 3rd May 2000 as amended from time to time.
2. Foreign Direct Investments in Asset Reconstruction Companies
(ARCs)
In consultation with Government of India, it
has been decided to permit persons/ entities eligible under the Foreign Direct
Investment (FDI) route, other than FIIs to invest in the equity capital
of Asset Reconstruction Companies (ARCs)registered with the Reserve Bank of
India. A copy of the press release dated November 8, 2005 issued by the Government
is enclosed.
It is clarified that in the ARCs, only Foreign
Direct Investment will be permitted. However, investments by Foreign Institutional
Investors (FIIs) will not be permitted.
Accordingly, Foreign Investment Promotion Board
(FIPB) would henceforth consider applications from eligible persons/entities
under the FDI route to invest in the paid up equity capital of Asset Reconstruction
Companies which are registered with the Reserve Bank of India subject to the
following conditions:
a. Maximum foreign equity shall not exceed
49% of the paid up equity capital of the ARC.
b. Where investment by any individual
entity exceeds 10% of the paid up equity capital, ARC should comply with the
provisions of Section 3(3) (f) of Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
3. Investments in Security Receipts issued by
ARCs
It has also been decided to grant general permission
to Foreign Institutional Investors (FIIs) registered with Securities and Exchange
Board of India (SEBI) to invest in Security Receipts (SRs) issued by Asset Reconstruction
Companies (ARCs) registered with RBI. FIIs can invest upto 49 per cent of each
tranche of scheme of Security Receipts subject to condition that investment
of a single FII in each tranche of scheme of SRs shall not exceed 10 per cent
of the issue.
4.The policy on FDI in ARCs would be subject
to review after two years and that of FII investment in SRs would be reviewed
after one year.
5. Necessary amendments to the Foreign Exchange
Management (Transfer or Issue of Security by a Person Resident outside India)
are being issued separately.
6. Authorised Dealer banks may bring the contents
of this circular to the notice of their constituents and customers concerned.
7. The direction contained in this circular
has been issued under sections 10(4) and 11(1) of the Foreign Exchange Management
Act, 1999 (42 of 1999) and is without prejudice to permissions/approvals, if
any, required under any other law.
Yours faithfully,
(Vinay Baijal)
Chief General Manager
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