In far reaching suggestions to purge the banking industry of bad loans, global consultant PricewaterhouseCoopers said on Thursday that the government should allow 100 per cent FDI and a minimum capital of Rs 5 crore (Rs 500 million) for setting up an asset reconstruction company.
In its final report submitted to the finance ministry, PwC suggested sweeping changes in Securitisation Act and waiver of capital adequacy requirements for ARCs.
It also mooted a host of tax incentives including waiver of income tax, dividend tax and tax deducted at source for ARCs. It recommended that states rationalise stamp duties to facilitate taking over of NPAs estimated at over Rs 100,000 crore (Rs 1,000 billion).
PwC said a single party should be allowed to control an ARC subject to safeguards to prevent 'warehousing of NPAs.'
PwC suggested suitable changes in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002.
The government has constituted a steering group to plan and monitor the implementation of PwC recommendation.
The finance ministry had, in consultation with Asian Development Bank, appointed PwC to carry out a study on the environment required for the smooth functioning of ARCs.
Apart from suggesting changes in the Sarfaesi Act, PwC also suggested a minimum capital or net-owned fund of Rs 5 crore for ARCs and waiver of capital adequacy requirements.
PwC has proposed a number of fiscal measures for ARCs, including exemption from income tax, dividend tax and tax deducted at source.
It also said that a single party should be allowed to control an ARC subject to safeguards to prevent 'warehousing of NPAs.'
Foreign investors should be allowed to hold the entire 100 per cent of the security receipts issued by an ARC under any scheme, PwC said.
PwC proposed reduction in stamp duty in states to reduce transaction costs of ARCs.
Apart from sweeping changes in the operations of ARCs, PwC proposed that banks and financial institutions should be allowed to spread losses over five years while computing their CAR.
PwC also proposed changes in SEBI Act to allow foreign institutional investors to invest in securities issued by ARCs.
ARCs should not be charged for NPA resolution, it said.
FEMA should be amended to allow foreign companies to hold up to 100 per cent in ARCs, said PwC.
Foreign investors should be allowed to hold the entire 100 per cent of the security receipts issued by an ARC under any scheme, it said.
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 CAR.
PwC also proposed changes in SEBI Act to allow foreign institutional investors to invest in securities issued by ARCs.
The government has constituted a steering group to plan and monitor the implementation of PwC recommendation.
The finance ministry had, in consultation with Asian Development Bank, appointed PwC to carry out a study on the environment required for the smooth functioning of ARCs.
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