Steps initiated to tighten NPA of banks: GS Sandhu

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SME Times News Bureau | 14 Jul, 2014
The Government has expressed its determination to bring down the Non-Performing Assets (NPAs) of banks, particularly those relating to the power and road sectors, both of which have agreed to the setting up of dedicated Asset Reconstruction Companies (ARCs).

"We are working on a model to address the stressed assets concerning the power and road sectors and hope to find a solution in these major areas," said Dr. G S Sandhu, Secretary, Financial Services, while addressing FICCI's National Executive Committee Meeting in New Delhi on Saturday.

Dr. Sandhu told FICCI members that NPA management was being tightened and the Budget proposals outlined by the Finance Minister on Thursday reflect that resolve. He said NPAs of banks have risen considerably during the last three years mainly due to the weak performance of the economy. The 2014-15 Budget has proposed early resolution of the problem through Debt Recovery Tribunals (DRTs).

Simultaneously, regulation is being tightened for faster recovery of debt for which the Finance Ministry would make changes in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) and DRT Acts. He added that the ministry was also considering the feasibility of setting up of a National Asset Management Company (NAMCO), a detailed representation for which has been made by FICCI.

He said a big onus now rests with the banks to raise their capital base for lending to the infrastructure sector. In his budget speech Finance Minister Arun Jaitley had said, "To be in line with Basel-III norms there is a requirement to infuse Rs. 2,40,000 crore as equity by 2018 in our banks. To meet this huge capital requirement, we need to raise additional resources to fulfill this obligation. While preserving the public ownership, the capital of these banks will be raised by increasing the shareholding of the people in a phased manner through the sale of shares largely through retail to common citizens of this country. Thus, while the government will continue to have majority shareholding, the citizens of India will also get direct shareholding in these banks, which currently they hold indirectly. We will also examine the proposal to give greater autonomy to the banks while making them accountable."

Dr. Sandhu said that to make this happen, the Government will dilute its equity in banks to 51% to meet the target of raising the required capital of Rs 2.4 lakh crore. This would be equal to about 15-20% of the current level of advances by the banking sector. "We have a time frame of 4-5 years and we are framing an action plan to raise this order of funds," he added.

Responding to the several concerns expressed by Sidharth Birla, President of FICCI, Dr. Arvind Mayaram, Finance Secretary, said the budget proposals as growth-oriented with a clear focus on giving industry a fillip, strengthen the financial services sector, re-energise the infrastructure sector, stress on social equity schemes and other areas such as defence, heritage conservation, and management of municipal services.

He said, "This is just the beginning there will be more Budgets and the government is determined to take difficult decisions and walk that path."

Shaktikanta Das, Revenue Secretary, said that the thrust of the Budget was to revive growth. Overall thrust of taxation was on reviving manufacturing sector, tax rationalization, reducing litigation, reducing ambiguity, and creating jobs.

On continuation of GAAR beyond March 31, 2015, Das said that the new government still needs to take a view on it and will clarify its stand shortly.

On direct taxes, he said, the tax incentives proposed such as lowering of threshold limit of investment allowance, tax holiday for power sector, REITs and Infrastructure Investment Trusts are expected to unlock lot of resources to generate economic activity.

On the indirect taxes front, he said that industry's concerns over the continuance of MAT and the differential rate of taxation on dividends from abroad and those paid out to Indian shareholders would be set at rest once detailed justifications are put out by the CBDT.

J M S Sundharam, Chairperson, CBEC, said that the Finance Minister in his Budget Speech had mentioned that the manufacturing sector was under stress. By adopting various measures, providing clarifications on policies, reversing the inverted duty structure and amendments in taxation, the Budget has tried to address diverse tax related issues.

Sidharth Birla noted that the budget sets a positive tone by advocating fiscal prudence, shunning populism and pitching for bold reforms. Through this budget, the stage is being set for repair of the economy. There is mix of short and long term measures geared towards boosting confidence. One key priority was to see an effort to address Tax Adventurism, by assuring no retrospective application and setting direction for a stable, predictable taxation regime that will be investor friendly and spur growth. The Advance Ruling for domestic companies is a great move.

However, the proposed changes in the computation of DDT by grossing up dividend received for purposes of tax increases the effective tax rate from 17% (including surcharge) to about 20%. "While this may create avoidable complications, we also see that the budget continues a concessional rate of 15% on dividends from abroad, without a sunset date. We believe there should be equity and perhaps a 15% rate can be adopted for both, so as not to penalize Indian shareholders and ultimately affect retail participation and deepening of markets," he said.

He said given the magnitude of its current impact, industry would like the government to consider continuance of MAT much before the introduction of any revised DTC. While welcoming the lowering of threshold limit of investment allowance, Birla said and added, "We hope that the period of the incentive can be increased from three years to five years".

On CSR expenditure, he said this is now disallowed as a business deduction. Besides governance issues, where directors cannot spend money outside business purposes, it amounts to appropriation of profits. "To my understanding, the State or anyone other than shareholders, cannot direct appropriation outside a Balance-sheet. This may lead to judicial challenges unless this expenditure is considered a business expense, as in the past," he pointed out.