Bank deposits and debt MFs 'Overlapping, but not competing,' says SBI Chairman as taxes turn unfavorable for latter

State Bank of India Chairman Dinesh Kumar Khara

State Bank of India (SBI) Chairman Dinesh Kumar Khara on March 24 said banking system deposits are not necessarily a competition to mutual funds, although overlapping in certain areas.

Khara said in an interview with CNBC TV18 that both are different asset classes catering to people with different financial objectives. On the deposit front, bank deposits amount to Rs 200 trillion-plus and total AUM of debt MFs is over Rs 20 trillion. Thus, it is unlikely that the change in taxation will meaningfully boost a market that is almost 10 times its size.

Talking about taxation, he believes that it is something that one has to live with anyhow, so he doesn't expect any meaningful shift of investors away from debt MFs to bank deposits. "There are a certain set of people who would like to keep their funds in debt MF irrespective of the taxation impact," Khara said, indicating that he does not expect any drastic shift away from debt MFs.

However, the exact implication the tax on debt MFs will have on the two asset classes is unclear as of now.

Also read: Kotak maintains positive outlook on banks despite growing uncertainties

Comments from Khara came after the proposed amendments on taxation in debt mutual funds investment.

As per proposed amendments, debt funds having not more than 35 percent investment in equity shares would be taxed as per income tax slab level or may be treated as short-term capital gains.

Banks deposits are also taxed at the same slab.

Prior to this, debt funds if held for more than three years were taxed at 20 percent along with indexation benefits or 10 percent without indexation. Those with a holding period of fewer than three years are taxed according to their tax slab.