BUDGET: Bankers hope for more tax sops to boost deposit growth

[K.Karthik Raja]

BUDGET: Bankers hope for more tax sops to boost deposit growth
Wednesday, Feb 27

MUMBAI - Bankers are keenly waiting for Finance Minister P.
Chidambaram to announce some incentives in the Union Budget for
2008-09 (Apr-Mar) that will help them to raise more deposits.
"There should be a level playing field for banks. There should be
an
exclusive category under income tax exemption (Section 80C) for
deposits," said Yogesh Agarwal, chairman and managing director,
Industrial Development Bank of India Ltd.
Banks have to offer higher rates because bank deposits don't get
any tax breaks, Agarwal said.
"Why is stock market booming...all dividends are made tax-free.
You give me the same tax break...I want a level playing field,"
Agarwal said.
Currently, individuals can enjoy tax exemption on five years and
above bank deposits.
Bankers want this tax exemption to be relaxed to deposits of three
years and above.
Until the beginning of current financial year, banks were finding
it
difficult to meet the incessant credit growth with a slower deposit
growth.
The credit-deposit mismatch got corrected in the current financial
year after banks started luring customers by offering higher deposit
rates.
From Apr-Jan, bank deposits grew 27.3% compared with 23.2% year
ago. Bank credit during this period grew 22.8% compared with 29.7%
year ago.
It is also expected that Chidambaram may increase ceiling for tax
deductible at source on fixed deposits to 10,000 rupees from 5,000
rupees, said Kotak Mahindra Bank in its pre-budget expectation.
The budget may also reintroduce exemption on infrastructure
financing to boost lending to this sector, analysts said.
.
HOUSING SOPS
The finance minister may announce some schemes for property
developers for encouraging mass housing for the poor, analysts said.
Also, since this is Chidambaram's last budget before the next
central
government election in 2009, some income tax relaxation can be given
to housing loan borrowers.
"At present, individuals are allowed tax deductions of up to
100,000
rupees on principal payments on home loans and up to 150,000 rupees on
interest on home loans. Any move to raise either of these thresholds
could be beneficial for end-user demand and real estate developers,"
Goldman Sachs
said in its report.
.
NPA PROVISIONING
The Indian Banks' Association, on behalf of bankers, has suggested
that the Income Tax law be amended to allow the actual provisions made
by banks for bad loans to be eligible for tax deduction and to tax any
write-back of such provision.
There is a considerable divergence between provision made under
the Reserve Bank of India guidelines and that admissible under Income
Tax Act, IBA said in its pre-budget note to Chidambaram.
"Since the deduction so available under Income Tax Act is
different from the RBI guidelines, there is a difference between
income accounts which are maintained as per RBI guidelines," IBA said.
IBA also suggested the removal of limit of 8.33% employer
contribution to annual gratuity fund as the contribution is likely to
be higher under the revised AS-15 accounting norms.


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