The Reserve Bank of India is understood to have proposed 49 per cent stake for foreign institutional investors in asset reconstruction companies.
The proposal is being reviewed by the finance ministry and has yet to be finalised.
The RBI has, however, ruled out single-party ownership in ARCs -- something not permitted under the Securitisation Act, sources said.
The Act allows ARCs to be set up in India to help banks and financial institutions to recover their bad debts by taking them over and selling them to other investors. It, however, places restriction on shareholding by sponsors of ARCs.
RBI's recommendations have favoured fiscal incentives for ARCs in the form of tax benefits. Although the final decision on tax benefits will be decided by the Central Board of Direct Taxes, the central bank proposes that the tax incentives could be designed in line with that for mutual funds. The objective is to avoid double taxation, both in the hands of the promoter and the investor.
The Asian Development Bank had earlier suggested to the Union government of India and RBI that single investor holding be permitted in order that there is effective control in ARCs.
ADB's report viewed that single investor of non-performing assets, including foreign investors, should be allowed to subscribe to 100 per cent of the security receipts under any scheme.
"Holding 100 per cent security receipts would enable investors to exercise control over resolution strategy. This is typically the primary requirement of independent NPA investors when considering such investments," the report had then stated.
The finance ministry is also in the process of making some amendments to the Securitisation Act so that a borrower need not shell out 75 per cent of the borrowed funds even at the appellate level in debt recovery appellate tribunals.
The ministry is working out a change whereby the borrower has to submit a maximum of 25-30 per cent of the funds at the appellate level. The fact is that recovery from a distressed asset is difficult and hence has been transferred to an ARC.
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