What changed
The ceiling for foreign direct investment in ARCs was raised from 49% to 74%, and the prohibition on FII investment in ARC equity was removed, with a combined FDI+FII limit of 74%. The FII investment limit in Security Receipts was increased from 49% to 74% of each tranche's paid-up value, and the earlier 10% individual FII cap per SR tranche was removed.
What it means for you
Banks and lenders can now expect deeper foreign capital participation in ARCs, potentially improving resolution of stressed assets. The higher caps and removal of individual FII limits on SRs should enhance liquidity and pricing in the security receipts market, aiding faster asset recovery.
What you must do
- Update internal compliance systems to reflect the new 74% combined FDI+FII limit for ARC equity.
- Advise ARC clients that individual FII shareholding in ARC equity remains capped at 10% of paid-up capital.
- Inform FII clients that the 10% per-FII limit on SR investment per tranche has been removed, but sectoral caps and corporate bond limits still apply.
- Ensure all foreign investments in ARCs comply with the FDI entry route and sectoral caps as per extant regulations.
Who it affects
Authorised dealer banks handling foreign investments, Asset Reconstruction Companies (ARCs), Foreign Institutional Investors (FIIs), Foreign Direct Investors (FDIs) in ARCs
What is the new combined foreign investment limit in ARCs?
The combined FDI and FII limit in ARC equity capital has been raised from 49% to 74%, with no single sponsor holding more than 50%.
Can FIIs now invest directly in ARC equity?
Yes, the earlier prohibition on FII investment in ARC equity has been removed, subject to the 74% combined cap and individual FII holding not exceeding 10% of paid-up capital.
What changed for FII investment in Security Receipts?
The limit was increased from 49% to 74% of each tranche's paid-up value, and the earlier 10% individual FII cap per tranche has been removed, though sectoral caps and corporate bond limits still apply.