GE to sell India financial services biz to Aion, former execs

The transaction represents about USD 400 million in ending net investment and includes businesses such as auto leasing, healthcare financing and corporate lending and leasing. 

General Electric Co said it would sell its India commercial lending and leasing businesses to a consortium of former GE Capital executives and Aion Capital Partners as it looks to trim itself and focus on its industrial businesses. 

The transaction represents about USD 400 million in ending net investment and includes businesses such as auto leasing, healthcare financing and corporate lending and leasing. Employees would also be transferred to the buyer, the company said. 

Aion has partnered with former GE Capital executives Pramod Bhasin and Anil Chawla for the acquisition. Bhasin was formerly the head of GE Capital in India and Asia. Chawla was the head of the commercial business operations of GE Capital India. 

Aion is a joint venture between ICICI Venture and Apollo Global Management.

Sun Capital Services

India on course for recovery: IMF report

Pegs GDP growth at 7.5% for FY17; expects private investmentto pick up

New Delhi, March 2:  

In a thumbs-up to Finance Minister Arun Jaitley’s financial management, the International Monetary Fund has said that the Indian economy is on the path to recovery, helped by low crude oil prices, improving current account and fiscal deficits, as well as a sharp fall in inflation.

However, in its India: 2016 Article IV Consultation report, the IMF has pegged the country’s growth rate at 7.3 per cent this fiscal and 7.5 per cent for the next. This is marginally lower than Jaitley’s official estimate of 7.6 per cent GDP growth in 2015-16 and 7-7.75 per cent in 2016-17.

“The Indian economy is on a recovery path, helped by a large terms of trade gain (about 2.5 per cent of GDP), positive policy actions, and reduced external vulnerabilities,” said the report, which is based on the IMF’s consultations with officials from the Finance Ministry and the Reserve Bank of India.

With some uptick in industrial activity, the Washington-based international lender also expects a pick-up in private investment to help broaden the economic recovery.

The report has, however, warned that a number of economic risks remain. On the external front, it has highlighted a possible disruption from increased volatility in global markets, unexpected developments in US monetary policy and China’s slowdown.

On the domestic front, the IMF has listed the weakness in corporate financial positions and bad loans of banks, as well as the delay in reforms as risks that could weigh on growth, accelerate inflation and undermine sentiment.

“On the upside, further structural reforms could lead to stronger growth, as would a sustained period of low global energy prices,” it said.

The report also stressed the need for continued vigilance, growth-friendly fiscal consolidation, and sustained reforms to enhance the resilience of the economy and bolster potential growth.

Essential reforms

It said reform priorities include removing supply-side bottlenecks, especially in the agricultural and power sectors, and facilitating land acquisition. “Further reforms are also essential to boost employment in the formal sector, encourage female labour force participation, and enhance labour market flexibility more broadly,” said the IMF.

The report welcomed the adoption of flexible inflation targeting and the progress in enhancing monetary policy transmission, and said the RBI should be ready to tighten the monetary stance, if required, to control inflation.

Sun Capital Services

FM Jaitley defends EPF tax, says move was step to a pensioned society

Finance minister Arun Jaitley on Wednesday defended the government's intent behind taxing employee provident fund withdrawals even as the BJP's allies and rivals raised the pitch for a rollback.

The budget proposed that 40% of an individual's accumulated corpus in the employees' provident fund (EPF) and the National Pension System schemes would not be taxed at the time of withdrawal. This effectively meant that the remaining 60% of the corpus was taxable.

Jaitley said at an event organised by Rajya Sabha TV that the government's intent "was not to raise some revenue from this" but it wanted to "incentivise for a pensioned society".

Read | With the tax on EPF, how safe are your investments?

However, he said he was considering all the demands and would spell out the decision when he replied to the debate on the budget in Parliament.

Allies Shiv Sena, Akali Dal and TDP "conveyed" their message of disappointment to the BJP brass. "We had reservations about the budget proposal to slap tax, albeit partially, on provident funds. We had raised it at the appropriate platform," Anandrao Adsul, the Shiv Sena's chief whip in the Lok Sabha, told HT.

Within the Sangh Parivar too, there was disquiet. The RSS-affiliated Bharatiya Mazdoor Sangh threatened to escalate its protest. It dubbed the proposed EPF tax as "double taxation" as the gross salary of a salaried individual would already have been taxed.

"We are in discussion with stakeholders. There are many stakeholders. Now I cannot reveal many things. Our government is considering all options," labour minister Bandaru Dattatreya told the Rajya Sabha. "We are in touch with the ministry of finance. Government will also consider these issues. Up to now I can say this."

Tapan Kumar Sen of CPI-M took objection to the minister's claim, saying Dattatreya had not been consulted despite being a key stakeholder. AIADMK MP V Maitreyan said the government decision was "anti-working class".

Read | In defence of EPF tax: Govt not afraid of taking on moneybags

Naveen Patnaik's BJD, otherwise supportive of the government, was opposed to the proposal. "We heard there would be a partial rollback of the tax proposals on PF. But we want a full rollback. There should not be any tax on the PF money of the common man," the BJD's Lok Sabha leader Bhartruhari Mahtab told HT.

The move that could impact seven million private sector employees triggered howls of protest from subscribers and labour unions that termed it anti-worker. At present, withdrawal from the EPF is entirely tax-free.

The government on Tuesday moved into damage control mode, hinting that it was open to modifying the rule to tax only the interest earned on 60% of the EPF contributions made after April 1, 2016.

"We have received representations today from various sections suggesting that if the amount of 60% of corpus is not invested in annuity products, the tax should be levied only on accumulated returns on the corpus and not on the contributed amount," the finance ministry said on Tuesday.

Sun Capital

Sumitomo Mitsui Banking Corp to sell stake in Kotak Mahindra Bank

Sumitomo Mitsui is looking to sell almost half of its stake in Kotak Mahindra Bank for around $300 million

Shares of Kotak Mahindra Bank closed at Rs.630.25 on the BSE, up by 2.35%, while the benchmark Sensex closed at 23,002 points, down by 0.66%, on a day the stock markets witnessed volatile trading on account of the announcement of the union budget.

Mumbai: Japan’s Sumitomo Mitsui Banking Corp. is looking to sell almost half of its stake in private sector lender Kotak Mahindra Bank Ltd, for around $300 million (approximately Rs.2,050 crore), according to two people aware of the development.

As of 31 December, Sumitomo held a 3.58% stake in the private-sector lender, data from stock exchanges show.

“The book has been launched and the sale is expected to close overnight,” said one of the two people mentioned above, requesting anonymity as he is not authorized to speak to the media.

Large domestic and foreign institutions have shown interest in buying the stake in block trade, he added.

Shares are being offered to buyers in a price range of Rs.611.34 to Rs.636.55 per share, according to Bloomberg. Citigroup Inc. is managing the share sale program, the report added. After the transaction, Sumitomo’s stake in the bank will fall to around 1.79%.

The Japanese bank firm had picked up a 4.5% stake in Kotak Mahindra Bank in 2010 through a preferential allotment for Rs.1,366 crore.

Shares of Kotak Mahindra Bank closed at Rs.630.25 on the BSE, up by 2.35%, while the benchmark Sensex closed at 23,002 points, down by 0.66%, on a day the stock markets witnessed volatile trading on account of the announcement of the Union budget.

Also, on Monday, California Public Employees’ Retirement System (CalPERS), the largest pension fund in the US, sold a stake worth around Rs.870 crore (approximately $127 million) in Axis Bank Ltd, according to data at stock exchanges.

Foreign institutional investor (FII) Genesis Indian Investment Co. Ltd bought the stake (around 0.94%) at a price of Rs.387.5 per share.

Last month Genesis bought a stake worth Rs.318 crore in Dabur India Ltd through an open market transaction, according to information on stock exchanges. The FII bought about 12.7 million shares, or a 0.72% stake, in Dabur.

In 2015, California Public Employees’ Retirement System, had assets under management of $298 billion, according to Preqin, a private equity database.

Shares of Axis Bank closed at Rs.375.25 on the BSE, down by 2.75%.

Sun Capital

Budget 2016: Food marketing opened to MNC multi-brand retailers

In a major move, the government has opened the food sector to 100% foreign direct investment (FDI) to multi-brand retailers via the Foreign Investment Promotion Board..

In a major move, the government has opened the food sector to 100% foreign direct investment (FDI) to multi-brand retailers via the Foreign Investment Promotion Board (FIPB) route. Finance minister Arun Jaitley announced in the Budget, presented on Monday, that, “100% FDI will be allowed through the FIPB route in the marketing of food products produced and manufactured in India”.

This basically means that foreign retailers in the food sector can set up marketing outlets in the country but will have to sell food products manufactured by Indian producers. Analysts said this means that Global retailers like Marks and Spencer’s or Tesco, which have food services units, can now set up marketing outlets in the country where they can sell food products manufactured by Indian companies.

Food processing minister Harsimrat Kaur Badal said on Tuesday that 100% FDI will be permitted only in multi-brand retailing of food products, and not in all items. Also, while the extant rule on FDI in multi-brand retailing of any product mandates that at least 30% of raw materials have to be sourced from the domestic market, in food processing, a foreign retailer will have to procure 100% of raw materials from domestic sources to be eligible to bring in 100% FDI.

If a foreign retailer doesn’t wish to source the entire raw materials from the domestic market for multi-brand retailing in food products, it can still set up shop, but the FDI has to be restricted to 51%. Also, it has to fulfill the usual conditions stipulated for multi-brand retailing, food processing secretary Avinash Srivastava told FE.
Currently, rules allow foreign food firms to set up shop in the country to produce and market their products like Coca-Cola or Pepsi does. However, the new proposal opens room for any global retailer to simply market products manufactured by Indian companies.

“This can range from tying up with small domestic retailers making some specific food products, who do not have the wherewithal to expand, or having alliance with even big players. The detailed rules will be known when the department of industrial policy and promotion comes out with the guidelines,” says Harminder Sahni of Wazir Advisors, a New Delhi-based retail industry consulting firm. The new rules will now allow “foreign companies to set up up shops here and bring in a lot of technology such as cold chains” to reduce wastage and improve efficiency in farming.

The domestic consumer retail market is estimated at about R12 lakh crore, of which half consists of selling food and food products. The wastage of food from the farm before it reaches the consumer is estimated to be about 15%-20%, or about R92,000 crore, every year because of lack of storage facilities and transportation.

“Allowing 100% foreign investment in the retail of domestically-processed food will give farmers greater access to the market and also encourage food firms to innovate, so that food is available in enough quantities to feed everyone as well as fits their pockets” said Siraj Chaudhry, chairman of Cargill India, the firm that makes and sells the Leonardo range of olive oils, Gemini, NatureFresh, Sweekar, Rath and Sunflower Vanaspati.

Echoing similar sentiments, Krish Iyer, president of Walmart India, said the move would encourage the industry to produce locally rather than import food products and sell it here. “This far-reaching reform will benefit farmers, give impetus to food the processing industry and create vast employment opportunities,” Iyer said.

By Sun Capital

Budget 2016: Growth-oriented Budget

Amidst global challenges, the finance minister has presented a very prudent growth-oriented Budget without walking away from the fiscal deficit reduction road map.

Amidst global challenges, the finance minister has presented a very prudent growth-oriented Budget without walking away from the fiscal deficit reduction road map. This also opens up a window for the Reserve Bank of India to bring down interest rates further and expect at least one rate cut very soon.

Substantial investment of Rs 97,000 crore has been allocated for road sector. It is also been said that the government has decided to add 50,000 km of road length to the existing national highway network. This will create more development opportunities in the years to come.

To revitalise projects under public- private partnership (PPP) model, two significant steps have been taken which include issuance of guidelines for renegotiation of PPP concession agreements in a transparent manner, and new credit rating system for infrastructure projects to be issued.

Due to creation of new credit rating system, the benefits accruing to infrastructure projects will be better appreciated, resulting in a better rating. This will help infrastructure developers tap bond market and because of better rating of projects, insurance and pension funds will be able to come forward to fund these projects.

Another significant step for a progressive public-private partnership  project frame work is making Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvIT) structure investor friendly.

In this regard, now distribution made out of income of special purpose vehicle to the REITs and InvITs having specified shareholding, will not be subjected to dividend distribution tax, in respect of dividend distributed after the specified date. With this change the long pending demand of investors will stand addressed and Infrastructure Investment Trusts can now become a success story.

The Budget will have a good impact on boosting domestic demand, which will help the overall economic growth. Renewed impetus to irrigation is also a very welcome move. The Budget talks about implementation of 89 irrigation projects under AIBP which were languishing for a longer time and fast tracking of the same.

The overall allocation for rural sector and agriculture sector will also help the growth to pick up substantially. Renewed focus on initiatives like skill development, Make in India and incentives associated with the same in the Budget will result in good amount of employment generation.

The only disappointment in the Budget proposal is with regards to double taxation of dividend income, and would have been good if the same could have been avoided.

Sun Capital

IDBI Bank looking to double business by FY19

Will catch up with the industry average of 12-15% growth, says MD & CEO

Mr. Kishor Karat, MD & CEO 

As part of its three year medium term strategic business plan, IDBI Bank on Tuesday said it is planning to double its business, rebalance loan portfolio towards micro, small and medium enterprises, agriculture and retail credit, augment low-cost deposits and purge the balance sheet of bad loans.

The public sector lender has unveiled the plan in the backdrop of it posting a huge loss of Rs. 2,184 crore in the October-December 2016 quarter and the government announcing in the Budget that it will consider the option of reducing its stake in the bank to below 50 per cent.

Under the plan, IDBI Bank expects to double its business (deposits plus advances) to Rs. 10-lakh crore (deposits of Rs. 5.50 lakh crore and advances of Rs. 4.50 lakh crore) by FY19 from the estimated Rs.5 lakh crore (deposits: Rs. 2.85 lakh crore and advances: Rs. 2.35 lakh crore) in FY16.

IDBI Bank will rebalance its portfolio so that the share of loans to retail, micro, small and medium enterprises and agriculture segments increases to 41 per cent of total loans in three years from 33 per cent now.

Consequently, the share of corporate and infrastructure loans in the total loans will come down to 37 per cent (43 per cent now) and 2 per cent (24 per cent), respectively.

Kishor Kharat, MD and CEO, said his bank has overcome the limitations on balance sheet growth arising from it not being able to meet the priority sector lending targets and is now at an inflection point.

Observing that the bank has grown at 5-6 per cent over the last few years due to the limitations, he said it will catch up with the banking industry’s average business growth of 12-15 per cent.

To bring down the cost of deposits, the bank plans to augment low-cost current account and savings account deposits from 25 per cent to 35 per cent of total deposits and reduce dependence on bulk deposits from 44.6 per cent to 32.6 per cent during the three-year period. This will bring down the cost of deposits to 5.9 per cent from 7.4 per cent as at December-end 2015.

The bank will contain the gross non-performing assets to below 3 per cent from 8.94 per cent as at December-end 2015 by stepping up efforts for recovery/resolution of bad loans. It will bring down the net NPAs to near zero from 4.60 per cent through intensive recovery and upgradation of accounts.

Branch expansion

To support business expansion, IDBI Bank will add 2,000 branches over the next three years, including 500 branches and 1,500 low cost banking points, and add 6,000 employees to its present count of 15,500.

When asked about his opinion on consolidation among public sector banks, Kharat said the strengthening of his bank’s balance sheet could help it takeover a bank.

---

IDBI Bank will rebalance its portfolio so that the share of loans to retail, MSMEs and agriculture segments increases to 41 per cent of total loans in three years from 33 per cent now

By Sun Capital

IDBI Bank unveils Rs 20,000-crore investment plan over three years

To raise Rs. 20,000-crore capital via equity route

MUMBAI: A day after Finance Minister Arun Jaitley said the government may consider bringing down its stake in state-run IDBI Bank to below 50 per cent, the lender today announced a "transformational" plan entailing an investment of about Rs 20,000 crore over a three-year period. 

The plan includes doubling the bank's business volumes and reducing gross NPA level below 3 per cent. 

"The plan rests on business growth and our approach will be to catch up with the industry. We will double our business from around Rs 5 lakh crore in FY16 to Rs 10 lakh crore in FY19, representing CAGR of over 20 per cent per annum," Managing Director and Chief Executive Kishor Kharat told reporters here. 

However, he was quick to add the "transformational plan" has nothing to do with the Government's move to reduce stake in the bank. 

"The plan has nothing to do with whether we remain a public sector or a private sector bank because it does not talk abut composition of ownership or holding. On a standalone basis we have made this plan for transforming the bank and therefore the thrust is more on business transformation." 

Kharat said bad loan will remain an issue for some more time but expressed confidence the bank will be entering the next fiscal with a lighter stress. "Our endeavour will be to bring down gross NPA to 3 per cent and net NPA to near 0 per cent." 

For the quarter ended December, the bank's gross NPAs jumped to 8.94 per cent from 5.94 per cent in the same period last year, while net NPA rose to 4.60 per cent. 

To meet the plan, the bank is looking at raising around Rs 19,000-20,000 crore over the next three years, he said. Besides, it will be raising Rs 4,000 crore from Tier I bonds and Rs 8,000-9,000 crore through Tier II bonds. 

The city-based lender has lined up around Rs 3,000 crore of assets for monetisation, of which it is expecting nearly Rs 1,200-1,500 crore to accrue this month. 

Kharat said he would like to list the bank's subsidiaries - IDBI Capital, IDBI AMC, IDBI Federal - but no final decision has been taken so far. "Right now, we will monetise to the extent of our need only." 

The bank has also put on hold its plan to raise Rs 3,771 crore through qualified institutional placement (QIP) route due to volatile market conditions. 

"We have put the QIP plans on hold for now because the price is not right at this point in time. The investor interest during our roadshow was very good but they wanted more clarity around the impact of AQR (asset quality review). Now that things are clearer, we will wait for the price to come back up," Kharat said.

RBI allows banks to expand capital base to meet Basel III norms

Sun Capital: RBI allows banks to expand capital base to meet Basel III norms

At a time when public sector banks (PSBs) have been struggling with a low capital base, the Reserve Bank of India (RBI) has allowed banks to beef up its capital adequacy by including certain items such as property value, foreign exchange for calculation of its Tier-I capital.

The new norms revealed by the regulator suggest that banks can now include the value of the property while calculating its Tier-I or core capital base. But not the entire value of the property would be included; instead only 45 per cent of the property value would be counted.

However, this comes with caveats. For instance, the regulator has stated that the property value would be counted only if the bank is able to sell the property readily at its own will and there is no legal impediment in selling the property. Apart from this it also mandates that the valuation should be obtained from two independent valuers, at least once in every three years.

Analysts with a credit rating agency said considering revalued assets (real estate) as part of common equity may only serve the purpose of regulatory capital requirement. That hardly improves the credit profile of banks. The asset has to be ready (available) to absorb loss in times of need.

Foreign exchange, another item that was not included while calculating the capital base, can also be included. “Foreign currency translation reserves arising due to translation of financial statements of a bank’s foreign operations to the reporting currency may be considered as CET1 (common equity tier-1) capital. These will be reckoned at a discount of 25 per cent,” said the regulator.

Apart from these two, gains arising out of setting off the losses at a later date can also be counted as Tier-1 capital, up to 10 per cent. This will be a breather for the lenders, especially PSBs, which have been grappling with the issue of mounting bad loans and depleting capital base.

According to RBI sources, this move would help in unlocking Rs 30,000-35,000 crore of capital for PSBs and up to Rs 5,000 crore for private banks.  

The government estimates that state-run lenders would require Rs 1.8 lakh crore over the next four years. Banks would have the onus to raise the balance Rs 1.1 lakh crore from the market. This is because the finance ministry has promised to pump into PSBs Rs 25,000 crore each in FY16 and FY17 and Rs 10,000 crore each in FY18 and FY19. RBI’s move on Tuesday will serve in meeting the capital requirements.

A PhillipCapital report believes this would be a big positive for PSBs as it would evade the risk of huge dilution of equity. “SBI can gain Rs 20,000 crore from revaluation of property, which can add 50 basis points to Tier-1 on account of revaluation reserves only,” it said.

According to new Basel-III norms, which kick in from March 2019, Indian banks need to maintain a minimum capital adequacy ratio (CAR) of nine per cent, in addition to a capital conservation buffer, which would be in the form of common equity at 2.5 per cent of the risk weighted assets. In other words, banks’ minimum CAR must be 11.5 per cent, which is higher than the 9.62 per cent banks are required to currently maintain.

Sun Capital Advisory Services

JP-UltraTech Cement deal: Stressed lenders to receive about Rs 4,000 crore

MUMBAI: In what could be the biggest recovery of loans from a struggling company, Indian banks will receive about Rs 4,000 crore from the sale of Jaiprakash Associates' cement units to UltraTech Cement, said three people familiar with details of the deal. 

Lenders such as State Bank of India, IDBI Bank and ICICI Bank played an active role in the sale of the cement plants at an enterprise value of Rs 16,500 crore, said the people cited above. 

Banks have agreed to transfer about Rs 12,000 crore of Jaiprakash Associates' loans to the Kumar Mangalam Birla-owned unit, they said. Indian lenders are tightening the screws on promoters who are behind schedule in loan repayments. 
The RBI has set a deadline of March 2017 to clean up banks' books. While Jaiprakash has not been declared a defaulter in the technical sense of the term, the company has been lagging behind in payments. 

"The company was not classified as NPA (non-performing asset) but their payments were not happening on due dates which shows that they were strapped for liquidity," said BK Batra, deputy managing director of IDBI Bank. "Therefore, we exerted pressure on the company to sell its entire cement unit to reduce debt. The company has been cooperating by putting up the best of assets on block to reduce debt." 

Banks are being pressed by the Raghuram Rajan-led RBI to clean up their books after stressed loans in the system touched a high of 11.3% of the total. More loans could be classified as rotten and the demand for capital from the government could rise. Analysts estimate that more than Rs 2 lakh crore may be needed in the next three fiscal years to capitalise banks. 

There was a significant increase in bank credit to Jaiprakash Associates in the last three years. Its share in the firm's total debt of more than Rs 29,000 crore at the end of March 2015 stood at 82%, up from 58% in 2012, according to a Morgan Stanley report. 

ICICI's total exposure to the group was at Rs 6,624.2 crore, or 32.8% of the total, at the end of FY15, up from Rs 3,615.3 crore three years earlier. Under the terms of the UltraTech transaction, lenders won't be taking any haircuts even as the deal has been struck at a time when corporates can push lenders to write off a part of their loans to arrive at better valuation. 

Transferring some of their debt to Ultra-Tech means that lenders now have exposure to a business group that's regarded as being financially more sound than many others, thereby reducing the risk of defaults. They can also assign lower capital on the loans as UltraTech is a better rated company. The riskier the borrower, the higher the capital assigned on the loan. 

Among the major financially stressed conglomerates, Jaiprakash Associates has been relatively more cooperative with banks. Others have been delaying asset sales in the hope of an economic recovery and increased cash flow to service debt or, in some cases, bargain for writeoffs. 

The central bank recently identified about 150 companies that are potentially defaulters but banks were yet to declare them as such. More companies could be putting their assets on the block as lenders go after bad loans.

By Sun Capital

Publish list of loan defaulters, AIBEA asks Centre

Suncapital.co.in: All India Bank Employees Association today urged the government to publish a list of defaulters, who had failed to repay loans worth over Rs 100 crore.

Responding to a question on the expectations of bank employees from the general budget to be presented tomorrow, AIBEA General Secretary C H Venkatachalam told reporters here that the banking sector was awaiting implementation of reforms for the betterment of bank services.

The government should offer loans to farmers at lower interest rates, so that the sector could again contribute substantially to the GDP, he said.
The banks, which were lending money with small savings of Rs 90 lakh crore, should open five lakh branches in the rural areas, where there were no branches, Venkatachalam suggested.
As the government was attempting to waive NPAs, reportedly worth about Rs 2 lakh crore, it should come up with a defaulters' list who had failed to repay their loans and book a criminal case and initiate stringent action against them, he said while referring to the reports that business tycoon Vijay Mallya, who owed thousand of crores rupees to several banks, was allegedly planning to leave India.

By Suncapital.co.in

Budget 2016 gives massive push to affordable housing supply and construction activity, seeks to spur demand

Sun Capital: Budget 2016 gives massive push to affordable housing supply and construction activity, seeks to spur demand

NEW DELHI | BENGALURU: The budget announcement on allowing 100 per cent deduction for profits to housing projects building homes up to 30 sq metres in the four metro cities and 60 sq metres in other cities is likely to spur supply of affordable homes, demand for which makes for almost 90 per cent of the demand for homes in India.

(Representative image) Builders and real estate experts say the exemption for affordable housing projects would bring in a 15-20 per cent upside on profits after paying the MAT tax. 

"100 per cent deduction for profits to an undertaking in housing project for flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019 and completed in three years. MAT to apply," finance minister Arun Jaitley announced in the budget today. 

Builders and real estate experts say the exemption for affordable housing projects would bring in a 15-20 per cent upside on profits after paying the MAT tax for a real estate developer building such a project, making it easier for the developer to attract foreign and domestic investment for housing projects.

In the budget, the FM also said that construction of affordable houses up to 60 square metres under any scheme of the Central or State Government including PPP Schemes will be exempt from service tax. 

First time home buyers will get deduction for additional interest of Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned in 2016-­17, where house cost does not exceed Rs 50 lakh. 

"This will push developers to redeploy money into building more affordable housing. The FM has tried to address supply side concerns on the housing front. This will bring in much greater supply, spur construction activity and employment connected to it. Anyway 90 per cent of demand for housing is in this segment," says Rajeev Talwar, chief executive officer of DLF. 

Getamber Anand, national president of industry body Confederation of Real Estate Developers' Associations of India (CREDAI) says the government has actually understood that ease of doing business has to become reality to spruce 0 Comments Ravi Teja Sharma , Sobia Khan Search for News, Stock Quotes & NAV's READ MORE : real estate | MAT | Budget 2016 | Arun Jaitley Comments Add Your Comments actually understood that ease of doing business has to become reality to spruce up the GDP. 

"There has been a lot of rationalization of taxes. Small pain points of the real estate industry like harassment by excise department on ready mix concrete being manufactured on site for self use have been addressed," he says. 

In his speech, Jaitley extended excise duty exemption, which is presently available to concrete mix manufactured at site for use in construction work to ready mix concrete as well. 

The big challenge before the industry, Anand says, is to now lobby with states to increase density norms to achieve 30 sq metres and 60 sq metres of housing. 

In Haryana, for examples, the density norms are so low that you cannot do 30 sq metres of housing at all. 

"Supply of these kinds of homes cannot increase unless density norms area changed and density is increased for housing projects," he explains. 

Ashish Puravankara, managing director of Puravankara Projects says there is a huge shortage of affordable homes across cities. 

"The enhanced home loan interest deduction will further encourage buyers to invest more in this segment. This will further encourage private participation in affordable housing," he says. 

Anand of CREDAI says the budget has put the onus on real estate developers to finish houses within three years of start if they are to avail the exemption for affordable homes. "This would also be a challenge for us in the absence of single window clearance for project affordable," he says. 

"The government's service tax exemption on houses less than 60 sq m, and the additional exemption of Rs 50,000 for housing loans up to Rs 35 lakhs for homes not above Rs 50 lakhs will both likely improve first-­time home buyers' sentiment," says Jason Kothari, CEO, Housing.com. 

Shishir Baijal, managing director of property consultancy Knight Frank India says the housing sector will get a push from both supply and demand side. 

Baijal pointed out that the government's focus on digitization of land records is in the right direction especially in the rural areas, which will render land records free from encumbrances. 

The budget has also increased the limit of deduction of rent paid under section 80GG from Rs 24,000 per annum to Rs 60,000, to provide relief to those who live in rented houses

Sun Capital Advisory Services

India Budget 2016: Winners and Losers

Sun capital: India Budget 2016: Winners and Losers

Arun Jaitley, India's finance minister, Jayant Sinha, State finance minister, second right, and other members of the finance ministry in New Delhi, India, on Feb. 29

India’s annual budget is one of the nation’s most closely watched events -- not just for the numbers, but for the political message during a speech that runs for about 90 minutes.

This year rural villagers came away as undisputed winners, with Finance Minister Arun Jaitley announcing plans to "transform India for the benefit of the farmers, the poor and the vulnerable." That was expected: Prime Minister Narendra Modi lost a key state election in November, and faces as many as nine more contests next year. Here are the winners and losers.

WINNERS:

• Farmers -- pledges to double income of farmers by 2020, allocates 360 billion ($5.3 billion) to agriculture and farmers’ welfare; steps to ensure a greater share of retail food prices reach producers; announces 200-billion-rupee irrigation fund and record 9 trillion in credit for farmers. Affected companies include Shakti Pumps India Ltd., Jain Irrigation Systems Ltd.
• Poor families -- 100 percent of households to have cooking gas within three years; 100 percent of villages to have electricity by May 1, 2018.
• State-run banks -- 250 billion rupees to recapitalize government-controlled banks. "If additional capital is required by these banks, we will find the resources for doing so," Jaitley said. “We stand solidly behind these banks." Shares of State Bank of India Ltd. and Bank of Baroda could be affected.
• India’s biggest commodities exchange -- MCX Ltd. headed for a three-week high on the budget’s proposal to expand foreign direct investment in the exchanges.
• Housing developers -- 100% deduction in profits for affordable housing projects approved by March 2019. Projects must be built within three years. Shares of DLF Ltd., Unitech Ltd. could benefit.
• Tax litigants -- one-time dispute resolution scheme for those involved in retrospective tax disputes to pay only arrears; interest, penalty to be waived. Vodafone Group Plc, Cairn India Ltd. could gain.
• Infrastructure projects -- allocates 2.21 trillion rupees in total outlay for roads, railways and ports. Larsen & Toubro Ltd., India’s biggest engineering company, could see a boost.
• Energy industry -- "calibrated" market-based pricing to incentivize deep sea hydrocarbon exploration; 30 billion rupees a year to boost nuclear power investment. Reliance Industries Ltd., Oil & Natural Gas Corp., Oil India Ltd. could benefit.
• Startup Investors -- Profits made after two years of holding exempt from capital gains tax, compared with three years earlier. Move to benefit angel investors, seed funds and other early backers of startups.

LOSERS:

• The High Rollers -- 1 percent cess on luxury cars valued at 1 million rupees or more; surcharge on income tax raised to 15 percent from 12 percent on those earning 10 million rupees or more a year; additional 10 percent tax on those earning 1 million rupees or more in dividend income.
• Coal producers -- tax on coal production to double to 400 rupees per ton. Companies affected include NTPC Ltd., Tata Power Co., Adani Power Ltd.
• Smokers -- taxes on cigarettes to be hiked as much as 15 percent. Affected stocks include ITC Ltd., India’s biggest cigarette maker, and Godfrey Phillips India Ltd.
• Carmakers -- an infrastructure cess ranging from 1 percent to 4 percent on vehicles to help combat pollution. Shares of Maruti Suzuki India Ltd. fell to a 16-month low.
• Jewelry makers -- Excise duty on jewelry and higher threshold for exempt purchases. Companies affected include Titan Co.

Sun Capital Advisory Services