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Banks recap, ARC for stressed assets among steps for financial sector

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New Delhi, Feb 1 (IANS) The financial sector has seen several announcements in the Union Budget including banks recapitalisation and a ARC for stressed assets.

Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research said that the budget has made a few important announcements in financial sector reforms. It has permitted 74 per cent FDI in the insurance sector which is expected to lead to higher investments and consolidation in the sector.

While another Rs 20,000 crore has been allocated for capital in public sector banks, the budget has also announced its intent to divest its stake in two public sector banks and one general insurance company.

“This is surely a significant step ahead but the government’s ability to execute it in a timely manner needs to be seen. Lastly, an ARC and an AMC is proposed to be set up to buy out stressed assets of the banking sector. We, however, will need to wait for the details in this regard before we can comment on the efficacy of such a bad bank in providing capital relief to the banks with high GNPAs,” he said.

Manoj Purohit, Partner and Leader – Financial Services Tax, BDO India said that to ease access of finance and augment funds for the infra sector, the proposal of providing FPIs an entry into debt financing of REITs and InvITs will open up a large source of fresh funding for the infrastructure and real estate sectors. This will also open up a new avenue for FPIs to invest in a growing market like India.

Ravi Singhal, Vice Chairman, GCL Securities Ltd, said that the bill for the development of financial institution has shown a clear path for the growth on financial infrastructure in the Atmanirbhar Bharat. Further, the Modi government’s announcement of a sharp increase in capital expenditure and thus providing Rs 5.54 lakh crore will develop momentum for financial infrastructure domain.

“Further, the announcement of the development of investor charter should also be welcome as it will protect the hard-earned money of a number of investors.”

The Budget has also announced decriminalisation of offences under corporate laws. “The consolidation of securities laws, existing decriminalisation of offences under the Companies Act and the proposed decriminalisation under the LLP Act marks an important move towards making Indian corporate legal framework, simpler, business friendly and ultimately (hopefully) reducing compliance costs,” said Arka Mookerjee, Partner, J. Sagar Associates.

The Budget also announced a new securities market code. “The securities market code is in line with previous discussions on the NFRA. It marks a step towards streamlining the multiple laws, ordinances, guidelines and regulations. If drafted and executed in a proper manner, it will be helpful to market participants and remove any possible conflicts in the regulatory framework and will provide clarity in policy making to investors and stakeholders,” he said.

Shagoofa Rashid Khan, Partner and Head – Project, Investment and Advisory Head – Funds, Investment and Advisory, Cyril Amarchand Mangaldas said a new development financial institution announced to target debt portfolio of 5 lakh crore. Will this be new wine in old bottle or will this be a progression on the learnings of past development finance institutions and IDF experimentation, she asked.

Khan said the long-awaited task of aligning SEBI FPI regulations with Sebi InvITs and REITs regulations has been finally announced. Debt capital to now flow easily from FPIs including ESR focussed funds and financial institutions.

She said the assets identified for NHAI and PGCIL InvITs pipeline will make these Invits very attractive and thus deepen the InvITs market.

Khan said the fine print of announcements relating to ARC and asset management company to acquire, manage and sell stressed and distressed loans to AIFs needs to be assessed. This could lead to spreading the risk and reward of such investments across wider spectrum who under the extant guidelines may not have qualified as QIBs for direct investment in security receipts such NRIs, family offices etc.

Monetisation of surplus land under government companies and sick public sector enterprises will kick start the languishing real estate sector but alignment and easing the approvals process (including change in land use, urban land celing clearances, environmental approvals, development authority approvals etc) for re-purposing these lands to profitable commercial use in order to attract foreign capital is key, Khan said.

“Despite many announcements that could lead to real estate development, it is disappointing that FM has not liberalised the FDI restrictions applicable to RE sector. The archaic restriction of three year lock-in needs to be removed to unshackle the sector,” Khan said.




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