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Budget 2018
Last Updated : Jan 23, 2018 06:06 PM IST | Source: Moneycontrol.com

Banks demand full tax deduction on NPA provisions; more funds for digital infrastructure

Government banks have suggested reduction in corporate tax rate by 5 percent, lowering of MAT rate to 15% and enhancing tax deductions and exemptions for individuals in the upcoming Union Budget.

Representative image
Representative image

A total of 19 public sector banks have suggested allowing full tax deduction on provisions made for bad loans, as against the cap of 5 percent of taxable income, as a high proportion of stressed assets are being resolved under the Insolvency and Bankruptcy Code (IBC).

The banking sector has been tackling the huge burden of non-performing assets (NPAs) worth over Rs 8 lakh crore that has bled into their balance sheets and impacted their profitability.

“The government should allow full tax deduction on the NPA provisioning as against the cap of 5 percent of taxable income. They have also suggested greater incentives for promoting digital transactions for merchants and users, as well as creation of dedicated fund for digital payments infrastructure in the upcoming Union Budget,” Indian Banks' Association said in a report based on a survey conducted with FICCI.

Banks have also suggested reduction in corporate tax rate by 5 percent, lower minimum alternate tax (MAT) rate to 15 percent and enhancing tax deductions and exemptions for individuals in the upcoming Union Budget.

In the survey, 19 banks, which account for nearly 60 percent of the total asset size of the banking industry, have demanded measures to facilitate credit growth and a pickup in investment in the economy.

Apart from a need for accelerated investments in the infrastructure sector, as well as interest subvention for investments in long gestation infrastructure projects, IBA said: “Most of the responding banks have suggested reduction in corporate tax rate from 30 percent to 25 percent, lowering of MAT rate to 15 percent and enhancing tax deductions and exemptions for individuals. This should boost credit demand at both corporate and retail level.”

Even as banks are growing their digital transactions manifold, in order to further enhance digital transactions along with the incentives, banks have suggested improvement in data security infrastructure and widening the reach of digital platforms to include all strata of society.

The government has already proposed fund infusion of Rs 2.11 lakh crore in the form of recapitalisation bonds, budgetary allocations and divestments into capital-starved public sector banks.

“Banks have suggested that banking reforms should go hand in hand with recapitalisation plan and there should be improvement in processes and policies in the public sector banks to avoid further erosion of capital," the industry body said in the report.

“Some of the respondents were of the view that the amount of recapitalisation will not be adequate and banks would need to consider raising additional capital through QIP route or through monetisation of non-core assets," it added.

About 58 percent of the respondent banks reported a rise in NPAs, significantly lower than 80 percent reporting so in the previous round of the survey, indicating possible stability in credit environment. Infrastructure, metals and engineering goods were the key sectors reported with the highest NPAs.

India Union Budget 2018: What does Finance Minister Arun Jaitley have up his sleeve? Click here for live Budget 2018 news, views and analyses.
First Published on Jan 23, 2018 06:06 pm
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