While Finance Minister Arun Jaitley did not announce the much-expected National Asset Management Company under the aegis of the government, the Union Budget has offered several sops and incentives to asset reconstruction companies (ARCs) to tackle the problem of bad debts in the system.
VP Shetty, Executive Chairman, JM Financial Asset Reconstruction Company, said, “the Budget has addressed a long-standing demand from the ARCs. Enabling sponsors to hold up to 100 per cent stake in an ARC and allowing 100 per cent FDI in ARCs through automatic route will open up avenues for ARCs and facilitate them to strengthen the capital base and effectively participate in the huge NPA market in India.”
Though the government has provided for only Rs 25,000 crore for bank recapitalization, the ARC industry that purchases NPAs from banks has been given a fillip. This is a key reform area and is a big positive as ARCs will now have access to more capital to help resolve bad debts. Banks are sitting on a pile of bad loans with the RBI directing them to classify weak assets as NPAs recently.
Shetty said there is also an attempt to increase the depth of the Security Receipts (SRs) market by allowing non-institutional investors to invest in SRs and removing the 10 per cent investment cap in each scheme of SRs for FPIs. The budget also provides clarity on taxation in the hands of Trusts set up by ARCs and confers a pass-through status to the Trusts.
Currently, 15 ARCs are registered with the Reserve bank of India.
Vinayak Bahuguna, CEO & Managing Director, Arcil, said the FM also announced proposed amendments in the SARFAESI Act 2002 to enable the sponsor of an ARC to hold up to 100 per cent stake in the ARC. “The government further proposed to provide complete pass through of income-tax to securitization trusts including trusts of ARCs, thereby taxing the income in the hands of the investors instead of the trust. These proposed reforms will surely enable the Indian ARCs to expand their horizon through easier access to funds and improved acceptance for Security receipts among the investors. We are delighted at these development,” Bahuguna said.
“Further, the FM has also clarified that ARC trusts which issue Security Receipts against purchase of NPAs will have a complete pass through of income tax,” said S Sriniwasan, CEO, Kotak Realty Fund.