Bill to amend Sarfaesi, debt recovery tribunal Acts cleared by Lok Sabha

The amendments to the Sarfaesi Act and debt recovery tribunal Act are aimed at faster recovery and resolution of bad debts by banks and financial institutions

Arun Jaitley (Finance Minister)

In an important step aimed to resolve bad loans, the Lok Sabha on Monday passed a bill to amend the existing Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, and the debt recovery tribunal (DRT) Act.

The amendments are aimed at faster recovery and resolution of bad debts by banks and financial institutions and making it easier for asset reconstruction companies (ARCs) to function. Along with the new bankruptcy law which came into effect earlier this year, the amendments will put in place an enabling infrastructure to effectively deal with non-performing assets in the Indian banking system.

The government had introduced the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 in May. The bill was referred to a joint Parliament committee which submitted its report last month. The bill will amend four acts—Sarfaesi Act, 2002, the Recovery of Debts due to Banks and Financial Institutions Act, 1993, the Indian Stamp Act, 1899 and the Depositories Act, 1996.

The bill will now go to the Rajya Sabha for its approval. Introducing the bill, finance minister Arun Jaitley said the government has accepted all the recommendations of the joint committee.

“The bankruptcy law is now becoming operational. One of the big challenges we face is the enforcement of interest and recovery of bad debts. Securitization law and DRT law need to be amended for quick disposal of disputes,” he said. “DRTs were envisaged as an alternative to civil courts and for ensuring quick disposal. But things need to move faster. Procedures in front of DRTs cannot be similar to civil courts,” he said.

Indian banks have been under stress with many of them reporting losses and surge in non-performing assets (NPAs) after the Reserve Bank of India (RBI) pushed lenders to classify visibly stressed assets as NPAs after an asset quality review in 2015-16. Total stressed assets of state-run banks as of 31 March were at 14.5% of total advances, and according to recent report released by RBI, this may increase further. The gross non-performing asset (NPA) ratio of state-run banks may rise to 10.1% by March 2017 from 9.6% as of March 2016, RBI’s financial stability report said, warning that under a severe stress scenario, it may rise to 11% by March 2017.

Flaws in the existing recovery process have added to the problem of bad loans. For instance, more than 70,000 cases are pending before DRTs.

The bill gives RBI powers to audit and inspect ARCs and the freedom to remove the chairman or any director and appoint central bank officials to its board. The central bank will be empowered to impose penalties for non-compliance with its directives, and regulate the fees charged by these companies to banks at the time of acquiring such assets.

The bill will also pave the way for the sponsor of an ARC to hold up to 100% stake. It will also enable non-institutional investors to invest in security receipts issued by ARCs and mandate a timeline for possession of secured assets.

To be sure, RBI already regulates these entities, but the bill expands the regulator’s powers. It also increases the penalty amount that can be levied by RBI to Rs.1 crore from Rs.5 lakh.

The bill proposes to widen the scope of the registry that will house the central database of all loans against properties given by all lenders.

It also proposes to bring hire purchase and financial lease under the ambit of the Sarfaesi Act, and enable secured creditors to take over a company and restore its business on acquisition of controlling interest in the borrower company.

As part of the overhaul of DRTs, the bill proposes to speed up the process of recovery and move towards online DRTs. To this effect, it proposes electronic filing of recovery applications, documents and written statements. DRTs will be the backbone of the bankruptcy code and deal with all insolvency proceedings involving individuals. The debtor will have to deposit 50% of the amount of debt due before filing an appeal at a DRT. It also seeks to make the process time-bound. A district magistrate has to clear an application by the creditor to take over possession of the collateral within 60 days.

However, many members of Parliament said the government should have the political will to check NPAs rather than enacting one law after another.

Saugata Roy, MP from All India Trinamool Congress representing West Bengal, said, “Political will is necessary and that seems to be missing. Bankruptcy and insolvency code has been passed. In spite of passage of laws, we have not seen much progress on either curbing black money or on NPAs of banks. Total stressed assets have crossed Rs.8 trillion,” he said.

The bill also proposes to amend the Indian Stamp Act to exempt deeds of assignment signed at the time of an ARC buying a loan from a bank from the levy of stamp duty.

“The amendments carry the work forward done in the insolvency and bankruptcy code. Automation will help in increasing the pace of recovery, but this requires an investment. Currently, the problem is that many DRTs from time to time do not have presiding officers,” Sandeep Singh, senior director at India Ratings said.

Indian economy can grow at 8.5% in 2016-17: Arun Jaitley

Finance minister Arun Jaitley said in New York that India can grow faster than expected if forecasts of normal monsoon rainfall prove correct.

New Delhi: Finance minister Arun Jaitley said on Tuesday that India’s economic growth this year could outpace estimates and accelerate to as much as 8.5% if the monsoon keeps its date with the country after back-to-back years of drought.

At a meeting with investors in New York, Jaitley also spoke about the government’s reforms agenda and the challenges the economy confronts in sustaining high growth.

India’s economy could grow by 8-8.5% in 2016-17, if forecasts of normal monsoon rainfall prove correct, Jaitley said at the meeting organized by Citigroup Inc.

The India Meteorological Department (IMD) last week projected monsoon rainfall this year at 106% of the long-term average after two consecutive years of below-normal rainfall in many parts of the country.

The Economic Survey projected India’s economic growth to remain within a range of 7-7.75% in 2016-17 against an estimated 7.6% growth in 2015-16.

A normal monsoon can provide a one-time push to economic growth in 2016-17 given the low base of agricultural production, said D.K. Joshi, chief economist at rating company Crisil Ltd.

“Beyond 2016-17, we have to rely on private investment to pick up for sustainable growth,” he added.

Crisil has projected gross domestic product (GDP) to grow 7.9% in 2016-17, assuming a normal monsoon. Joshi said he will wait until August to revise his growth projection.

“If IMD retains its normal monsoon projection in June, then we will stick to our growth estimate. In August, we will have a fresh look at the GDP number,” Joshi said.

Jaitley, however, cautioned about some potential risks to growth.

The risks highlighted by the minister include global headwinds that may hurt demand for exports, high oil prices and the June-September monsoon belying the forecasts of normal rainfall, Citibank NA, a unit of Citigroup, said in a note.

“However, the government doesn’t see $50 (per barrel) oil price as a significant problem. In the event oil prices go up, the main beneficiaries thus far (consumers, oil marketing companies and fiscal) will need to surrender part of the benefit,” Citibank said.

After falling below $30 per barrel in January for the first time in 12 years, crude oil prices have bounced back to above $40 per barrel. Brent crude, the international benchmark, was trading at $44.20 per barrel, up $1.29.

A collapse in the price of crude has helped reduce India’s trade deficit and keep the fiscal deficit in check.

India’s exports, meanwhile, fell 15.9% to $261.1 billion in 2015-16 while imports contracted by 15.3% to $379.6 billion. The trade deficit for the year was $118.5 billion.

Giving its own take on the economy, Citibank said recent macro data indicate a reversal of soft third-quarter data in 2015-16 and support its view that a gradual cyclical recovery will push gross domestic product (GDP) growth to 7.7% in 2016-17.

“Delayed salary hikes in the public sector are a risk to our consumption forecast but hopes of ‘normal’ monsoon bode well for rural demand. Consolidating fiscal might not be able to support public capex enough but some private-activity indicators are turning a corner. Overall, India’s relative macro outperformance continues in a difficult global environment. Stability worries recede with fiscal and inflation under control,” it said.

In his interaction with investors, Jaitley said he expects to table the bankruptcy code bill in the second part of the budget session, which resumes on 25 April.

The bill is currently before a joint parliamentary committee that is expected to submit its report shortly. Jaitley said he does not expect any major opposition to the bill.

“GST (goods and services tax) has been cleared in the lower House and the numbers are shaping up in favour of the bill for passage in the upper House,” Jaitley was cited as saying by the Citibank note.

On consolidation of the banking industry and stake sales in public sector banks, Jaitley said the government will look at reducing its stake in state-run banks to 52%, once the financial health of the banks is restored.

“Also, the FM does not believe that the current political climate in India is ready for government to reduce ownership in PSU (public-sector undertaking) banks to below 51%, as an amendment to current banking act will need to be passed,” the Citibank note said.

India’s banks are weighed down by non-performing assets (NPAs)—the result of an economic downturn and delayed regulatory approvals that made it difficult for many corporate borrowers to repay debt.

Listed banks added nearly Rs.1 trillion in bad loans in the December quarter, amounting to a 29% increase in the stock of gross NPAs from the September quarter.

Gross NPAs of 39 listed banks surged to Rs.4.38 trillion for the quarter ended 31 December 2015 from Rs.3.4 trillion at the end of September, according to data collated by Capitaline.

Jaitley mentioned that bad loans with public sector banks are largely attributable to a handful of sectors such as steel, power, infrastructure, textile and sugar industries. He said the government intends to tackle the problems on a sectoral basis.

“Moreover, the functioning of the PSU banks has improved, with top-level selection being more transparent. Bank reforms include professional board and management, and arm’s length dealing with the government,” Jaitley said.

Separately, at an event jointly organized by the Confederation of Indian Industry and Asia Society Policy Institute in New York, Jaitley said structural changes underway in India would place the economy on a stronger footing. “India has moved from being in a state of policy paralysis to the economic bright spot of the world,” a finance ministry statement cited the minister as saying.

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India says will ensure that banks are well-capitalised

India has "good control" over stressed loans at state-owned banks and will ensure lenders are well-capitalised, junior finance minister Jayant Sinha said on Friday.

Speaking as senior officials from the banks, the Reserve Bank of India and the finance ministry held an annual meeting, Sinha said the government would allocate capital based on the banks' capital-adequacy ratios, performance and credit growth.

"We will provide more as necessary to ensure that our banks are well-capitalised," he told reporters.

"As far as the set of stressed assets is concerned, as far as the NPA (non-performing assets) situation is concerned, that we think we now have very good control over and of course (we are) working very closely with the RBI."

Some critics accused the government of skimping on a bailout for the ailing state banks after Finance Minister Arun Jaitley did not announce additional funding in his Feb. 29 budget.

He stuck to plans to provide state banks with 250 billion rupees ($3.7 billion) of new capital in the next financial year towards a sector-wide bailout that the government estimates will cost $26 billion over four years.

Stressed loans -- those that have already turned bad and those seen at risk of doing so -- amount to 8 trillion Indian rupees ($119 billion), or 11.25 percent of total loans, Sinha said on Friday.

A recent surge in bad loans at state-run lenders after their regulator ordered a clean-up has led rating agencies to suggest banks will need more capital support from the government to cover losses and meet Basel III global banking rules.

More than two-dozen state-run lenders account for over two-thirds of India's banking assets and some 85 percent of troubled loans in the financial sector.

($1 = 67.0630 rupees)

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Will a new credit rating system for infrastructure projects help?

CARE expects the proposed system could help under-development projects with a rating agency stepping in at the pre-bid level of infrastructure projects

Mumbai: Finance minister Arun Jaitley on Monday announced the formation of a new credit rating system for infrastructure projects in the country for better credit enhancement.

A new credit rating system for infrastructure projects will give “emphasis to various in-built credit enhancement structures… instead of relying upon a standard perception of risk which often result in mispriced loans,” the budget statement said.

The intent seems to be to help infrastructure projects access credit from multiple sources and at better rates. However, it is unclear how the new system would be different from the existing credit rating scale put in place by credit rating agencies. It is also unclear whether the proposed rating system would be for operational projects or under-development projects or both.

“I have not seen the details, but if I draw a comparison with the banking rating system, how will it be different? Has the existing banking rating system helped?” asked a former government official, who has been closely associated to road project financing, but did not want to be named.

There are no clear answers as of now.

D.R. Dogra, managing director and chief executive officer of Credit Analysis and Research Ltd (CARE), expects the proposed credit rating system could help under-development projects with a rating agency stepping in at the pre-bid level of infrastructure projects. “A rating agency can help identify issues which lead to a lower rating at the pre-bid stage, which can then be addressed before private bids are invited,” said Dogra, adding that he is not aware of the details of the proposed credit rating system as it has not been discussed with rating agencies yet.

Not all are of the same view though.

A top official from another rating agency points out the new announcement speaks about credit enhancement. “Credit enhancement measures are taken only once the infrastructure projects are operational. This is the point where a refinancing can happen and bank credit can be replaced with bonds. A better rating makes the bonds market accessible in a better way,” he said. He refused to be identified as the agency is not aware what the actual fine print of the credit rating system would be.

Infrastructure consultant Vinayak Chatterjee, chairman for Feedback Infra Pvt. Ltd, is positive the new credit rating system would help the sector as the traditional rating methods do not fully take into account the risk in an infrastructure project which changes at different stages of the project life-cycle.

Even as the industry waits for details, a former rating agency official, who did not want to be named, said, “Need more clarity (on the details of the system), but mostly it would be inconsequential.”

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.

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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.

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Budget 2016: Foreign investors can now establish ARCs in India

Sun Capital: Budget 2016: Foreign investors can now establish ARCs in India 

MUMBAI: The asset reconstruction companies got a huge leg up from the Union Budget
with relaxation in sponsor holding limit, 100 per cent foreign direct investment and a
complete passthrough of income tax. Finance Minister Arun Jaitley announced easing of
sponsor holding limit to 100 per cent from the current 49 per cent paving the way for foreign
investors to set up an ARC in India.

"I propose to make necessary amendments in the Sarfaesi Act to enable the Sponsorer of
an ARC to hold upto 100 per cent stake in an ARC and permit noninstitutional investors to invest in securitization receipts," Jaitley said.

Currently, no sponsor can hold more than 50 per cent of an ARC's shareholding either by
way of FDI or by routing it through foreign portfolio investor controlled by the single sponsor.

"It looks very clear now that a foreign entity can also come in and establish an ARC in
India," VP Shetty, Executive Chairman, JM Financial ARC told ET. "Easing of sponsor limit
would certainly help ARCs to strengthen their capital base."

"The easing of sponsor holding limit will resolve capital issue for the ARCs to a very large extent," Siby Antony, MD & CEO, Edelweiss ARC told ET. "It's a good thing that the budget has given a lot of importance to ARCs for NPA management."

The government also relaxed foreign direct investment rules for ARCs by permitting 100 per cent FDI through the automatic route. The investment basket of foreign portfolio investors will now be expanded to include securities issued by such special purpose vehicles.

"Earlier only QIBs defined by Sebi were allowed to subscribe now it has been expanded, though we need little more clarification on who all will be part of non institutional investors," Antony added.

The Finance Minister also announced a compete pass through of income tax for all securitization trusts. "I propose to provide a complete pass through of income tax to securitization trusts including trusts of ARCs," Jaitley added. "The income will be taxed at the hands of the investor instead of the trusts."

The measures announced by the FM is aimed at enabling banks to clean their balance sheet which is saddled with rising bad loans.

"We have been representing to the government and RBI to allow us to have more capital so that we can participate in the market more significantly," Shetty added. "All the ARCs together have Rs 4000 crore of capital invested, with this capital our capacity to invest in bank bids is limited."

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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

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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.

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DLF pushes ahead with REIT listing plans

Suncapital: Country’s largest real estate firm by market capitalisation is gearing up to launch REITs worth up Rs6,000 crore in two tranches over the next two years

DLF is currently putting together commercial office assets totalling around 25 million square feet of land into the REITs portfolio

Mumbai: Pushing a step closer to launching India’s first Real Estate Investment Trust (REIT), real estate firm DLF Ltd expects to complete forming a special purpose vehicle (SPV) within the next six months, said a top company executive of the Delhi-based company.

“We would be ready with the SPV in the next six months. As we announced earlier, we have signed non-disclosure agreements with 25 global investors. We should be the first one to crack it (REITs),” Rajeev Talwar, chief executive officer (CEO), DLF Ltd, told Mint over the phone.

Country’s largest real estate firm by market capitalisation is gearing up to launch REITs worth up Rs.6,000 crore in two tranches over the next two years.

REITs are listed entities that primarily invest in leased office and retail assets, allowing developers to raise funds by selling completed buildings to investors and listing them on stock exchanges as trust. Investors earn return on investment either through value appreciation or rental income generated from commercial assets.

REITs will also give overseas investors a chance to invest in lease rental generating assets, an asset class otherwise prohibited for foreigners.

DLF is currently putting together commercial office assets totalling around 25 million square feet of land into the REITs portfolio. As part of the process, promoters of DLF have decided to sell around 40% of its stake in DLF Cyber City Developers Ltd (DCCDL), a rental arm of the company to institutional investors. DCCDL earns around Rs.2,200 crore a year from rentals.

“Basically what is going on right now is divestment (of commercial portfolios) and to get foreign investors into the REIT portfolio. They have to come in the fair market valuation. In the first two quarters of the year, we would have brought all the funds and complete with our first stage which is to form an SPV,” Talwar said.

The listing of REITs, which many believe would bring stability and attract funds to the sector, has not been able to take off mainly due to tax hurdles.

Finance minister Arun Jaitley in the Union budget on Monday proposed to exempt REITs from the purview of dividend distribution tax (DDT), removing a significant hurdle to floating it in India.

“Exemption of DDT on REIT along with the FDI (foreign direct investment) policy changes in December last year will help get huge inflows from foreign institutional investors. For foreign institutional investors, the taxation was making it a lower return product for them. Now this (exemption) increases return and thereby attract more inflow of funds,” he said.

Anuj Puri, chairman and country head of JLL India, said with the proposal to remove DDT, REITs would become a realty soon with few listings likely to happen this year either by financial institutions or developers.

“Currently, around 229 million sq. ft of office space can be seen as REIT-compliant. If we assume that even 50% of these get listed, we are looking at a total REITs listing worth $18.5 billion,” Puri said.

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