Giving an impetus to recovery of bad loans, the government has proposed amendments to the SARFAESI Act to allow sponsors of asset reconstruction companies to own up to 100% in them. Coming at a time when banks are unable to sell bad loans owing to paucity of capital with ARCs, the decision is expected to hasten sale of toxic assets.
“To tackle the problem of stressed assets in the banking sector, ARCs have a very important role,” the FM said.
Proposed amendments also include allowing non-institutional investors to invest in security receipts. Other changes include allowing non-institutional investors to invest in security receipts and increasing FDI limit in ARCs from 74% to 100% under the automatic route.
Reacting to the move, ARCs said it will not only bolster their capital base, but also let them bid for chunkier bad loans. Experts say all the ARCs put together have a capital base of `3,000 crore-4,000 crore, whereas bad loans of all banks put together are around `4.43 lakh crore.
“The removal of cap on sponsor holding and the subsequent increase in FDI limit in ARCs is extremely helpful at a time when ARCs are facing paucity of capital. Following this, the industry will be able to bid for and acquire larger loans and help ease the bad loan problem of banks,” said Siby Antony, MD and CEO, Edelweiss Asset Reconstruction Company.
The FM also announced that existing infrastructure for debt recovery tribunals will be improved to include computerised processing of court cases as a step towards reducing the number of hearings and faster conclusion of cases. In FY15, unsettled cases in debt recovery tribunals stood close to `4 lakh crore, up 19% from `3.35 lakh crore in FY14.
Meanwhile, in an effort to rationalise the tax regime for securitisation trusts, including trusts of ARCs, the government has decided to give a complete pass-through of income tax to these entities. The respective investors in these trusts will now become the only point of taxation, thereby eliminating the prevalent risk of double taxation.