How To Sign Iowa Banking Work Order

How to industry sign banking iowa work order

a bad bank idea in the budget had been doing the rounds but it was only after mr uday kotak said he expects the aif route to bad bank that we thought we should explore more on this issue aif is alternate investment funds they are funds which buy up big companies now this uh idea of you know several bad banks many funds coming in and buying stressed assets through the alternate investment route is something the budget may give a push from what we pick up from sources this story actually begins with the reserve bank itself which uh okay separately besides mr udaikotta mr anil agarwal also told us that he's planning to raise 10 billion dollars of a fund he is being one of the investors gets other big investors and that fund will invest in stressed assets so it's both mr udaikotta dropping the hint of aifs and anil agarwal which set us picking up the buzz on a different kind of bad bag how will this work you know much before this unconnected to the budget the reserve bank had put out a consultative paper that will come up for you had put out a consultative paper saying that you know you should have it was a paper on securitization but basically what that paper said is banks should be allowed to sell stressed assets to any regulated entity at the moment they are only selling it to asset reconstruction companies arcs they don't sell it to aifs so aifs cannot buy directly alone they under they are regulated by sebi and sebi is a securities regulator so aifs have to buy only securities at the moment what they do is the npas that they want they request one of their arcs to buy it asset reconstruction companies the ascetic company buys it issues security receipts on behalf of that asset and that is sold to the aif so that's how the aif comes into the stress loan market now the expectation was unrelated to the budget that the reserve bank may tweak its rules to allow banks to directly sell to aifs the sebi on the other hand may rewrite its rules to say that aifs will be allowed to buy loans and not just securities some such tweaking of rules was always expected but where does the budget come into the picture the budget is in the picture because there's a tax angle now let us assume an aif buys a one rupee asset for about 20 pies and then they you know they're able to turn it around and they sell it to another promoter at about say 50 pies so 30 say or 30 percent is their profit if it is treated as income then it gets a 40 tax in india that would make it unviable so what the aifs want is that the budget make a statement that these will be treated as capital gains if it's capital gains it's much less you know 10 or 20 and therefore that is one expectation through the aif route that the budget give a tax a stop separately what is the traditional ban bank idea the traditional bad bank is that it should be a public sector company so the expectation under that frame of reference is that the government creates an spv a special purpose vehicle or a body which is 100 owned by the government and capitalized by that by the government this bad bank this entity assesses all the stressed assets in the banking system gives a cut off okay i'm going to buy all the assets over a thousand crore uh or whatever 5000 crore it assesses the assets and says this one i am going to buy at 30 in the book value this one i will buy for 40 depending on their due diligence now banks are told if you either sell it to them sell it to the bad bank for the price they ask if you are not selling it to that extent you have to make provision in your books so this is an incentive for the banks to sell once the asset the bad bank has all the assets because it has collated it it is able to bargain with funds and sell it auction it to another promoter to another fund for turning it around so that is how the traditional bad bank is expected to work usually it doesn't require a lot of money because for the assets it buys it may not even give money to the banks it may give only receipts ious securities and then when the asset is turned around the bank the value of the bank's securities go up and the banks and cash it that is the traditional bad bank idea what we are given to understand from sources is that this traditional bad bank may not be something the government will attempt this time but it may make it easier for alternate investment funds to come around and buy stressed assets as mr udaykotak alluded