The Hindu Business Line : Offloading bad assets — High stamp duties a dampener for banks, FIs

Banking sources said high duties escalated the cost for stressed asset buyers. As a result, most of the buyers were focussing on buying out NPAs only in regions were the duties were low. Stamp duties are levied by the State Governments and comprised a major source of revenue for them. They are levied on transfers of contracts, share sales and real estate transactions.

These duties vary anywhere between anywhere 5 per cent and 15 per cent depending on the States where the transactions are domiciled. Accordingly, most of bankers preferred taking out assets located in Maharashtra and Andhra Pradesh where stamp duties were low. In fact, this is also one of the factors that have hindered the development of the mortgage securitisation markets. In the case of the mortgage securitisation market also, the transactions were domiciled in States where the duties were low, especially in Maharashtra.

However, the sources said, unlike securitisation transactions, altering the domicile of NPA takeout transactions was difficult. Ideally, while mortgage securitisation would be treated as primary transaction, NPA takeouts would be treated as a secondary transaction of the same asset. Therefore, secondary transaction on the assets would also be expected to be done in the same State.

Moreover, the sources said that wherever loans were backed by underlying collateral assets, particularly land or buildings, some of the States interpreted them as transfer of the underlying assets also. InOrissa, any transaction involving the transfer of ownership of the collateral assets was treated as a sale. If such underlying assets were land, the duties applicable would be as high 15 per cent, which is the rate currently applicable for real estate contracts.

As a result, the bankers said some of the agencies involved in taking out distressed assets preferred differential pricing mechanism. This implied that in States where the stamp duty rates were high, the discounting rates would also be on the higher side.

In fact, this is also one of the major hindrances for the entry of highly specialised foreign funds into the takeout of distressed assets, although many of them have already completed due diligence.

As a result, the sources said that almost all the bankers were pushing for uniform stamp duties for financial and banking related transactions across all the States.

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