| The government and the Reserve Bank of India have agreed to allow foreign institutional investors (FIIs) to acquire up to 49 per cent of the security receipts issued by asset reconstruction companies. |
| There would, however, be a sub-limit of 10 per cent on individual FII holdings, senior officials in the finance ministry told Business Standard. They added that necessary changes to the Foreign Exchange Management Act regulations would be made soon and relevant notifications would be issued over the next few days. |
| Security receipts can by issued by asset reconstruction companies (ARC) in lieu of cash payments. Banks and insurance companies, which sell their non-performing loans to ARCs, can also subscribe to the security receipts. Provident funds and pension funds are, however, barred from subscribing to the security receipts. |
| Officials said the move would help improve the market for bad loans. "With FIIs not allowed to subscribe to the security receipts, the market for non-performing assets had not really taken off. The move will create a large pool of qualified institutional buyers," said an executive with a consulting firm. |
| The finance ministry was pitching for allowing FIIs to buy up to 74 per cent of the security receipts issued by ARCs but the RBI was against the move. The central bank was of the opinion that FIIs should not be allowed to have majority control over the security receipts issued by ARCs as they may manipulate the market for non-performing assets. |
| On Wednesday, the government said it would allow up to 49 per cent foreign direct investment in ARCs but holdings of over 10 per cent by a company would require RBI's approval. Individual holding in an ARC can go up to 49 per cent. |
| OPEN DOORS |
| |
Top Section
Explore Business Standard