RBI eases 26% debt to equity conversion limit for ARCs
RBI says the extent of shareholding post conversion of debt into equity for asset reconstruction companies will be in accordance with permissible FDI limit for that specific sector
Mumbai: The Reserve Bank of India (RBI) has allowed asset reconstruction companies (ARCs) to hold more than 26% post conversion of debt into equity in companies undergoing restructuring.
In a notification on Thursday, the central bank said the extent of shareholding post conversion will be in accordance with permissible foreign direct investment (FDI) limit for that specific sector.
RBI also said that ARCs should maintain net owned fund (NOF) of Rs100 crore on an ongoing basis. In April this year, the central bank had raised the minimum net owned funds for ARCs from Rs2 crore to Rs100 crore by March 2019. The ARCs should also do a monthly valuation of the equity shares acquired from defaulting companies and also mark them to market.
“The ARC shall frame policy on debt to equity conversion with the approval of its Board of Directors and may delegate powers to a Committee comprising a majority of independent directors for taking decisions on proposals of debt to equity conversion,” said the notification.
RBI also said that ARCs should have at least half of the board members as independent directors to be eligible for exemption from shareholding limit.
“This is a long pending demand from ARCs. They can now go up to 51% post conversion of debt into equity,” said Siby Antony, chairman, Edelweiss ARC.
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