Budget 2018: Bankers seek tax sops to sell stressed assets

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Top bankers met Finance Minister Arun Jaitley on Friday with their wish list for Budget 2018. At the top of the list was a proposal to give tax breaks to buyers of stressed assets.

Axis Bank chief Shikha Sharma said the move is necessary to make the stressed asset sale more attractive. “If a buyer is going to take a hair cut in the debt and the debt is going to be written off the balance sheet then just as allowed in the SICA Act (Sick Industrial Companies Act) it should not be taxable,” she said.

What is the SICA Act?

The Sick Industrial Companies Act (SICA) deals with the issue of rampant industrial sickness in India. The Act was enacted in India to determine the extent of sickness in industrial units, expedite the revival of potentially viable companies and shut down unviable units to release investment locked up in them for productive use elsewhere.

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Banks are reeling under the pressure of non-performing assets (NPAs) and are facing the challenge to recover around Rs 10 lakh crore of bad loans. Few banks have also urged the government for tax sops on the haircuts that they may have to take under the resolution process provided in the Insolvency and Bankruptcy (IBC) Code.

After a first list comprising 12 large NPA cases was put out by RBI in June, the central bank in August came out with another set of around 28 stressed accounts were given to banks to be resolved by December 13 or to be referred to the NCLT.

According to a Moneycontrol report, 12 companies on the first list and 23 on the second have been referred to the National Company Law Tribunal (NCLT) under the insolvency process.

Banks had already taken up 11 companies — out of their first list of 12 companies — for insolvency proceedings at various NCLTs.

The Insolvency and Bankruptcy Code (IBC), 2016, has been enacted to re-organise and provide for the insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner.

Many bankers are even urging the government to secure the NCLT structure. The idea is to let banks undertake standard provisioning as per underlying income recognition and asset classification, instead of accelerated provisioning for companies referred to NCLT under IBC, to help lenders maximise recoveries.

Some bankers are also of the opinion that with adequate regulatory safeguards, bank financing for domestic mergers and acquisitions of weak companies with good underlying assets should be allowed by the government in order to accelerate NPA resolution.