Asset Reconstruction Companies in India – Challenges and Opportunities

On February 29, 2016, the Government of India (GoI) announced the easing of investment norms for Asset Reconstruction Companies (ARCs) in India. In his budget speech for the fiscal year 2016-17, the Union Minister for Finance, Arun Jaitley (Jaitley), announced that sponsor banks could increase their stake in ARCs from 50% to 100% and that Foreign Direct Investment (FDI) of 100% would be permitted through the automatic route . Earlier, FDI had been permitted to the limit of 49%, beyond which the foreign investors had to take the permission of the GoI .

“To tackle the problem of stressed assets in the banking sector, asset reconstruction companies have a very important role. I, therefore, propose to make necessary amendments in the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) , to enable the sponsor of an ARC to hold up to 100% stake in the ARC and permit non-institutional investors to invest in securitization receipts,” said Jaitley .