'Asset Fin cos: Open up ECB route of raising funds'

The infrastructure sector is poised to grow consistently and continuously in the coming years in order to realise India's growth momentum with sustained competitiveness.

The government's indication of a $1-trilion Twelfth Plan signifies a potential $455 million construction and infrastructure opportunity over FY12-17.

In today's scenario, where there is a paucity of long-term funds and where government is expected to incentivise private investments, government needs to address various issues related to the Asset financing NBFCs to make the sector more vibrant.

A huge portion of government's stimulus package should be aimed at sprucing up India's infrastructure and asset financing sector.

This will create huge opportunities for asset financing organisations like Magma Fincorp Limited which play a critical role in financing customers deploying their equipments in infrastructure related projects.

Asset financing services sector's income is poised to grow at a CAGR of 25% during 2012-14.

Therefore, in order to make the Union Budget 2012 -13 an infrastructure -focused one, the key concerns of asset financing NBFCs also need to be addressed.

Taxations -- Relief benefits and exemption should be granted in terms of taxation under various provision for Asset Financing NBFCs.

NBFCs are bank- like institutions.

Therefore, NBFCs should also get exemption under section 194A, since Advance tax mechanism where the administration is cost effective is well positioned to produce the same benefit to the exchequer.

We also feel that the provisions of Sec.43D of the Income Tax Act should be extended to include in its scope NBFCs registered with RBI, as in the case

of other institutions enabling recognition of income on sticky loans in the year of its receipt rather than on presently applicable accrual basis.

It will also be appropriate, in all fairness, that the provision for NPAs made by NBFCs registered with RBI, be allowed as deduction u/s.36(1)(viia) of the Income tax Act in a manner as is applicable to Scheduled Banks.

Policy direction -- The industry expects the budget to provide some sort of policy directions on bank lending to Asset financing NBFC.

The negative impact of any regulatory overhang on the NBFC sector is intense and one such issue has been the withdrawal of Priority Sector benefit on direct lending by banks to NBFCs.

Even though the Nair Committee (constituted by the RBI) has recommended a window of 5% to restore the direct lending route by banks to NBFCs, unless there is a policy direction by the Finance Ministry on overall Bank lending to NBFCs the overhang is likely to continue.

ECB route -- Considering that ECB route has already been opened to Infra finance companies, it is expected and also appropriate to open up the same for Asset finance companies as well.

Vehicle financing (commercial, passenger and utility) -- The impact on these asset class largely depends on the excise duty applicable.

Considering the current level of deficits, there will be any concessions on duties and on these assets. We rather expect that the excise will be increased on raw materials for these industries.

Infrastructure -- Roads and other infrastructure projects are expected to be prioritised and to be the thrust in the budget as we are entering the Twelfth Plan period commencing 2012.

The writer is chief financial officer, Magma Fincorp Limited