PricewaterhouseCoopers (PwC) has suggested a host of measures including tax sops, changes in the ownership norms and newer funding requirements to make the Indian asset reconstruction companies make more effective in reducing the level of non-performing assets in the Indian banking sector. | |
| In a report, prepared at the behest of the Asian Development Bank, has also made a strong pitch for reduction in stamp duty in states to reduce transaction costs of ARCs. A number of agencies and the government have been looking to reduce stamp duties but have not met with much success. |
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| In its final report submitted to the finance ministry, PWC reviewed the NPA situation in the country and the existing legal and operational framework for ARCs. The government has constituted a steering group to plan and monitor the implementation of these recommendation. |
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| Apart from suggesting changes in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, PWC has also recommended a minimum capital or net-owned fund of Rs 5 crore for ARCs and waiver of capital adequacy requirements of 15 per cent. |
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| The fiscal measures proposed by PWC include exemption from income tax, dividend tax and tax deducted at source. They have said that the structure of ARCs should be on the lines of those of mutual funds and similar tax benefits should be made available. |
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| It also said that a single party should be allowed to control an ARC subject to safeguards to prevent "warehousing of NPAs". The present guidelines allow a maximum shareholding of 49 per cent by a single entity. |
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| The report also said that foreign investors should be allowed to hold 100 per cent of the security receipts issued by an ARC under any scheme, in order to attract global players with expertise in handling sticky assets. |
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| Apart from sweeping changes in the operations of ARCs, PWC proposed that banks and FIs should be allowed to spread losses over five years while computing their capital adequacy ratio. |
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| More measures have also been proposed to encourage banks and institutions to transfer bad and doubtful assets to ARCs including fixing a ceiling on the NPAs that can be carried on their books. |
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| PWC also proposed changes in Sebi Act to allow foreign institutional investors to invest in securities issued by ARCs. |
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| The consulting company also made a case for waiving foreign investment ceilings, particularly in the real estate sector, for ARCs so that they can take over assets easily and transfer it to international players. |
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