The government has allowed 49 per cent foreign direct investment in asset reconstruction companies (ARCs), but barred foreign institutional investors from equity participation in firms buying non-performing assets (NPAs) of the banking sector.

The decision to allow FDI paves the way for the entry of CDC into the arena. CDC, formerly Commonwealth Development Corporation, is an agency of the UK government for private sector investments in developing countries.

CDC had proposed to set up a firm called Actis Asset Reconstruction Company Pvt. Ltd. (AARC) with 48-74 per cent equity, depending on the policy.

Corporation Bank and ING Vysya Bank were to be the other shareholders in the firm. The Foreign Investment Promotion Board was approached for setting up the company with an initial equity investment of Rs 74 crore and $50 million in security receipts.

But the proposal got deferred repeatedly in the absence of clear-cut guidelines.

A large number of foreign companies have been looking at investing in ARCs in India. While Asset Reconstruction Corporation of India, with equity participation from all leading banks, is already functional, other players like IFCI Ltd. and UTI Asset Management Company Ltd. have also set up ARCs.

(www.business-standard.com)