UNION BUDGET 1999-2000
February 27, 1999
FOR IMMEDIATE PRESS RELEASE
Association of Leasing & Financial Services Cos. (ALFS), the country's apex body representating over 500 Leasing & Financial Services Companies is committed to the long-term growth of the Finance Industry and welcomes the additional moves promoted by the Hon’ble Finance Minister Mr. Yashwant Sinha in his second Budget presentation for the year 1999-2000, towards fostering growth in the economy and the creation of a vibrant and well-regulated financial market. His support to the agricultural and industrial sector is highly appreciated. Following are the comments on some of the pertinent issues of the Budget.
1. BANK FUNDS TO SSIs VIA NBFC ROUTE :
When Banks give funds to NBFCs, which, in turn provide lease/hire purchase/loans to SSIs, such loans by banks to NBFCs will be considered as lending to PRIORITY Sector. This will encourage Banks to lend more funds to SSIs via NBFCs route, as NBFCs have a greater geographical spread, quick appraisal capabilities and more efficient recovery systems. This will doubly benefit banks as they will meet their priority quota as well as reduce their NPAs, as there will be extra cushion for banks in the form of recourse to the concerned NBFC which stands guarantee for such lendings. The announcement is welcome indeed and will give boost to SSIs, which are suffering due to non-availability of Bank Finance to them.
2. SPECIAL RECOVERY TRIBUNALS :
It is good that the Hon'ble Finance Minister has realised the need for speedy recovery of outstanding dues to the Financial Sector and the manner in which recovery systems in courts function. The borrowers have simply lost the fear of law and have taken repayments to Banks/FIs/NBFCs in a very casual manner.
Even where full precaution is taken while appraising the loan and even when documentation is also perfect, enforcing the legal rights and remedies is a distant dream. It takes anything between 5 to 20 years for the redressal of the matter. In the meantime, asset's value gets depleted or the same is fraudulently transferred by the promoter, or for that matter, promoter himself flees away out of the country. With a view to reduce such hardships to the lenders, the Finance Minister proposes to give more teeth to Debt Recovery Tribunals, setting up five more Debt Recovery Tribunals and introducing new Bill in the Parliament to cover Banks/FIS and expectedly NBFCs as well. Our Association will make a detailed representation to the Finance Ministry to include NBFCs in the new Bill, if already not so proposed and also on various procedural aspects relating to Special Recovery Tribunals to expedite the cases. This step will help in moving the money from bad hands to good hands and reduce the impact of recession, apart from reducing NPAs of the Financial Sector.
3. HOUSING SECTOR :
A series of steps announced for promoting housing finance viz., increasing deductibility of interest on self-occupied property from Rs. 30,000/- to Rs. 75,000/- amendment in Sec. 81A, taxability of interest to Housing Finance Cos. on actual basis rather than accrual basis, increase in depreciation for housing provided for employees by companies etc. are all commendable steps and will give boost to Construction and Housing Sector which suffer from lack of demand today.
4. CAPITAL MARKET :
Exemption in the hands of investors in respect of all incomes from UTI and other Mutual Funds will bring back the confidence of the investors in the Market, UTI and mutual fund industry. Now it is upon the management of these Funds to perform in the most optimal manner and drive back the retail investors to the Market. Reduction of LTCG to 10% to Residents will bring level-playing to them vis-a-vis NRIs and is a step long overdue. Tax benefits given for amalgamation and merger of companies will benefit only a certain set of companies and may not bring cheers to the corporate sector on a general basis. It is to be seen whether these steps will be sufficient to improve the state of Capital Market.
5. DEDUCTIBILITY OF PROVISIONS :
As is primarily understood from the Budget Speech, the Finance Minister proposes to allow tax deduction upto 5% in respect of provisions for NPAs made by Banks. It is expected that similar benefit should be extended to Registered NBFCs, as has been represented in the Pre-Budget Memorandum of Association of Leasing & Financial Services Cos. (ALFS). If not similarly extended, it will be highly disappointing.
6. SURCHARGE OF 10% :
Imposition of 10% surcharge on corporate and individuals, HUFs etc. in the higher slab is a retrograde step and will adversely impact the industry and investors accross the board. Even though stated to be temporarily introduced, such surcharges have the tendency to remain on the statute books for long times.
CONCLUSION :
Overall, the Finance Minister has tried to present a balanced budget within his limitations. However, this, by itself, may not revive the industry and the economy at a desired pace.
For Association of Leasing &
Financial Services Cos.
MAHESH THAKKAR
EXEUTIVE DIRECTOR