Partnering in Equity
Foreign Direct Investment in ARCs registered with the Reserve Bank of India under Section 3 of SARFAESI Act,2002 is allowed up to 100% on the automatic route.
Investment limit of a sponsor in the shareholding of an ARC will be governed by the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, as amended from time to time.
Similarly, investment by institutional / non-institutional investors will also be governed by the said Act, as amended from time to time.
The total shareholding of an individual FII/FPI shall be below 10% of the total paid-up capital.
Partnering in Business
FIIs/FPIs can invest in the Security Receipts (SRs) issued by ARCs. FIIs/FPIs may be allowed to invest up to 85% of each tranche in SRs issued by ARCs, subject to directions/guidelines of Reserve Bank of India. Such investment should be within the relevant regulatory cap as applicable.
All investments would be subject to provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, as amended from time to time.
Qualified Institutional Investors(QIBs) are allowed to invest in Security Receipts(SRs) issued by ARCs up to 85% of each tranche of SRs, since ARCs are mandated to invest a minimum of 15% as their share of investment.
Advantages
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Asset-backed investments mitigating downside risk
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Superior returns through reconstruction or liquidation of secured assets
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Every acquisition is routed through a trust(SPV) so as to ensure high degree of transparency in all matters relating to maintenance of accounts, formulation and implementation of resolution strategies, appropriation of realisations towards expenses, fees payable to the trustee(ARC), redemption of SRs to the investors, etc.
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The trustee ARC undertakes the job of acquiring NPAs; working out appropriate resolution strategies and monitoring its’ implementation; optimization of realisations through sale of secured assets, etc.
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In the event of non-realisation of financial assets, the QIBs holding SRs of not less than 75% of the total value of the SRs issued under the scheme, shall be entitled to call a meeting of all the QIB buyers and any resolution passed shall be binding on the trustee ARC.