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Govt allows 49% FDI in asset reconstruction
By agencies
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Thursday, 10 November 2005, 20:30 IST
NEW DELHI: The government has permitted 49 percent FDI in Asset Reconstruction Companies, better known as Non-Performing Assets, that buy stressed assets from banks and financial institutions and attempt to turn them around to profit.
The move is aimed at imparting the requisite liquidity in the asset reconstruction business in the form of FDI by foreign banks. It could also lead to a spurt in the number of ARCs in the country, where the banking sector is saddled with NPAs in excess $13.63 billion.
Already, a large number of Corporate Debt Restructuring proposals, coupled with buoyancy in major industries like steel, textiles and sugar has had a salutary effect on NPAs with banks. Lack of financial strength with the ARC sector has, however, been a cause for concern.
According to the finance ministry, the Foreign Investment Promotion Board would now consider proposals to infuse FDI in ARCs registered with the RBI. It was, however, clarified that foreign institutional investment would continue to be barred.
The new FDI policy would be reviewed after two years, ministry said. Where any investment by an individual exceeds 10 percent equity, ARCs should comply with the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.