Different state laws relating to sales tax and stamp duty have made it difficult for banks and financial institutions to go ahead with recoveries of bad assets even as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act is in effect.
Only 10 states provide stamp duty concessions on transfer or assignment of non-performing assets to asset reconstruction companies or other third parties. These states include Andhra Pradesh, Bihar, Chattisgarh, Gujarat, Maharashtra, Rajasthan, Tamil Nadu, West Bengal, Delhi and Karnataka. In these states, the stamp duty is capped at Rs 1 lakh on assignment of non-performing assets. In addition concessions are provided by Madhya Pradesh, Orissa and Uttar Pradesh as well. In other states sales tax range between 3% and 10% on deals.
According to experts, due diligence of non-performing assets has become a key issue due to the disparity in legal terms and conditions between the state governments. That apart, sales tax in certain states have to be paid before the deal, while in others it could be paid later.
Alok Dhir, partner, Dhir & Dhir Associates told FE that there needs to be uniform legal conditions between different states to make recoveries of bad assets faster. ?State governments need to have more uniform and consistent laws to make recoveries quicker and this would also help in due diligence,? he said.
Biswajit Bhattacharya, legal practitioner said that though the Act was envisaged to give teeth to the banks and FIs to make quick recoveries in cases of default, it has failed to have any major impact due to the mandatory requirement of 75% debt aggregation.
Sources within the banking industry said that the Act though proves to be a deterrent for default, needs to be more effective, to make recoveries faster and easier.