Government Raises FDI Limit in Asset Reconstruction Companies
By Gunjan Sinha, Senior Associate, Dezan Shira & Associates
Apr. 16 – With the advent of asset reconstruction companies (ARCs) in India, banks and other financial institutions have been given greater conditions in which they can concentrate on their core area of business, and are no longer being forced to manage the recovery of their Non Performing Assets (NPA). Instead, companies specialized in asset reconstruction can acquire NPAs from their originators to then attempt to manage and recover these assets.
Due to the increasing demand for these companies’ services and to certain macroeconomic trends, the foreign direct investment (FDI) limit in ARCs has been increased to 74 percent. The government previously limited FDI in ARCs to 49 percent. It is hoped that this revision will bring greater foreign expertise into the segment.
NPAs have typically been very problematic for financial institutions dependent on interest payment for revenue. Commonly, trouble in the overall economy would lead to a sharp increase in non-performing loans, often resulting in massive write-downs. With the deteriorating asset quality in the banking sector recently emerging as a major concern, the raised limit on FDI investment in ARCs is therefore seen as a welcome step.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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