Asset salvage firms face FDI policy glitch

The Foreign Investment Promotion Board (FIPB) has asked the finance ministry to come out with a clear policy on foreign direct investment in the equity of asset reconstruction companies and the permissible investment by foreign institutional investors in statutory receipts.

Deferring a decision on London-based CDC Group's application for increasing investment in the proposed Actis Asset Reconstruction Company, the FIPB, at a recent meeting, said the FDI policy was not clear on this.

It said that asset reconstruction was not among the 19 notified activities of non-banking financial companies on which guidelines were available.

Sources said CDC had sought permission for holding either directly or through its subsidiaries (in which it is the single largest investor) up to 74 per cent equity in the Actis Asset Reconstruction Company involving an investment not exceeding Rs 74 crore.

CDC plans to float ARC with an initial holding of 48 per cent with Corporation Bank and ING Vysya Bank holding 26 per cent each.

Under the Reserve Bank of India's March notification, reconstruction companies were required to have a minimum owned funds of not less than 15 per cent of the total financial assets acquired or to be acquired by it on an aggregate basis or Rs 100 crore, whichever was less.

CDC sought permission to invest up to 48 or 74 per cent representing an eventual investment as the case may be of Rs 48 crore going up to Rs 74 crore with further investment of less than $50 million in the SRs proposed to be issued by the trusts created by AARC.

The government has ruled out increasing foreign direct investment in asset reconstruction companies beyond 49 per cent and permitting foreign institutional investment in them.

The Reserve Bank of India was of the opinion that the maximum FDI permissible in the business was 49 per cent and no FII investment in the equity capital should be factored in.