Page 38 - Banking Finance August 2021

ARTICLE

banking sector, considered its lifeline, looks for an anchor Government has already infused almost 2.6 lakh crore in
for revival. Although the Budget provides a glimmer of banks through recapitalization so now bad banks would do
hope, the rise of the banking sector depends on various no better as per many economists. Bad banks can also ease
other factors. One of the major announcements for the off the banks of their moral responsibility and let them lend
sector is establishment of an Asset Reconstruction without any commitment to clear their NPAs.
Company (ARC, also referred to as a Bad Bank) to
improve bank balance-sheets. The need for cleaning up Conclusion
the debt from banks' books assumes importance as it The bad bank serves several purposes. For one, it helps
will help them raise capital and boost public confidence expedite the pace of debt restructuring by reducing the
in the banking sector. number of lenders who must agree to a proposed deal. It
Y Though the ARC can help banks reduce their NPAs (non- also makes it easier for foreign funds to build controlling
performing assets) and widen the capital base, it is still positions in the debt of a firm by allowing them to negotiate
a makeshift solution. There is need for a lasting solution with a single seller. Generally speaking, placing non-core
in the form of structural changes. It can be implemented assets in a separate division can help make a restructuring
in the mid-term by way of prudent lending and in the more efficient and transparent by providing investors with
long-term by bringing in policies to make the debt financial disclosures to better track the progress of a lender's
market more active. This will not only help in getting overhaul and hold management accountable. Shedding the
rid of the twin balance-sheet problem but also bring in assets in the bad bank then frees up capital that can be used
efficiencies by adopting market mechanism (this will also to bolster a firm's financial strength or be redeployed to
help in faster recovery of bad loans by employing the more profitable businesses. If it's a separate entity, it can
existing ARCs and avoiding the procedural delays). also allow a bank to clean up its balance sheet, stem losses
and protect depositors.
Challenges of Bad Bank
References:
The major issue would be of finding buyers in the pandemic
hit economy. The government is itself facing fiscal deficits www.thehindubusinessline.com
at present without governance reforms, the Public sector https://indianexpress.com/
banks would continue doing business in the same way as in https://www.bloomberg.com/
the past. It may also end up piling-up bad debts again. Union www.jagranjosh.com

No tax on foreign a/c if Indian not beneficial owner

Mere mention of a person's name in the account-opening form of an overseas bank does not mean that such an
individual is the beneficial owner of the bank account, according to a recent order passed by the Delhi bench of the
Income Tax Appellate Tribunal (ITAT).

An I-T officer had held that Jatinder Mehra, who had 'opened' this bank account, had not disclosed this overseas
asset in his tax returns and the stringent provisions of the Black Money Act would apply. Thus, he sought to tax the
Rs 5.7 crore (being the funds in this account) in Mehra's hands.
However, the ITAT observed that Mehra had filed an affidavit disclosing complete details of the ownership of the
bank account. Based on the solitary fact of his name mentioned in the bank account-opening form and lack of any
other evidence relating to ownership or beneficial ownership over such an account, the sum could not be taxed in
India in the hands of Mehra, ruled the ITAT.
In this case, an intricate set of facts were involved. Mehra's name together with his passport details were on the
account-opening form of a Singapore bank.
However, this account belonged to a foreign company - Watergate Advisors, incorporated in the tax haven of British
Virgin Islands. Mehra's son, a non-resident Indian since 1998, was the director and sole shareholder of this company.
Under tax laws, overseas income held by a non-resident cannot be taxed in India.

38 | 2021 | AUGUST | BANKING FINANCE