Stamp duties and registration fees in the States currently range from anywhere upwards of 12 per cent on the cost of the transaction. Such high transaction costs undermined the viability of the NPA take-out, bankers said.

C. Shivkumar

Bangalore, Nov. 18

STATES have declined to reduce stamp duties for asset reconstruction companies taking out non-performing assets from banks and financial institutions.

Banking sources said that States' refusal to provide duty concessions had created difficulties for rehabilitation of non-performing assets (NPAs), and in turn for the borrowers.

Stamp duties and registration fees in the States currently range from anywhere upwards of 12 per cent on the cost of the transaction. Such high transaction costs undermined the viability of the NPA take-out, bankers said.

In fact, this was one of the major reasons why most bankers were wary of shedding their assets in favour of the asset reconstruction companies.

High pricing: Bankers said that in States the stamp duties/registration fees were fixed on the basis of the face value of the NPA to be acquired. This made the pricing of the NPA high.

As a result, asset reconstruction factored these elements into the pricing, leading to very high discounts. So far, most of the NPA take-outs have been done at discounts upwards of 50 per cent of the face value, the bankers said.

In some of the cases, the pricing quoted by the take-out financiers was far less than the net book value (NBV) of the NPA. The NBV of the distressed asset is arrived at after netting of provisions. Liquidating NPAs at below NBVs therefore clearly did not make sense, since such losses would have to be debited from the profit and loss account.

High discrepancy: Bankers said that this pricing was one of the major factors leading to high discrepancy between the gross NPA ratio and the net NPA ratio. The average gross NPA ratio for the banking industry is currently about 4.5 per cent (NPAs as percentage of advances).

On the other hand, the average net NPA ratio is about 1.5 per cent, implying that banks preferred to have the NPAs on their books and resort to recovery measures themselves, instead of liquidating them in favour of ARCs.

Revenue earner: States' resistance to providing stamp duty waivers/concessions for NPA take-outs, bankers said, was driven by revenue considerations. Few States were prepared to forego revenues. Only States that were convinced that the transactions were revenue-neutral or revenue-positive had resorted to proactive measures in providing concessions and waivers, the sources said.

The sources said that currently only three States, Maharashtra, Andhra Pradesh and Tamil Nadu, had provided stamp duty waivers to banks and FIs for NPA take-outs. As a result, the sources said that the bulk of the NPA take-outs were concentrated in these three States, paving the way for rehabilitation of borrowers.

The bankers added that unless the rest of the States also followed suit, NPA rehabilitation would remain a problem area.

(This article was published in the Business Line print edition dated November 19, 2005)
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