Banks seek nod to float 3 year tax-exempt FDs, infrastructure bonds up to Rs 50,000

NEW DELHI: Banks and financial institutions have sought more tax sops from the finance ministry, arguing that the greater deposit mobilisation through incentives will help them lend more when the economy recovers.

Banks and financial institutions met Finance Minister Pranab Mukherjee on Thursday with their pre-budget demands.

"If there are more low-cost deposits in form of current and savings account, or CASA, the bank will be able to lend at cheaper rates which will fuel credit growth," said one of the bankers present in the meeting.

The bankers made the case for giving a push to intermediation by banks. Though the country's savings rate is about 32%, but only one-third of it reaches the banks, they told the finance minister justifying their demand.

In 2010-11, bank deposits accounted for 42% of the savings of Indian households, a sharp drop from 52.8% in 2008-09.

Households have instead preferred investments with life insurance companies, or small savings.

An official with another bank confirmed that they had demanded the tenure for banks deposits be eligible for income-tax rebate should be brought down to three years from the current five years.

"We have also said that banks should be allowed to float infrastructure bonds and the exemption limit under them should be increased to Rs 50,000 from the current limit of Rs 20,000," he said.

The finance ministry, in its official release, said that banks have emphasised the need for clarity and broadening of the definition of the infrastructure. They have also suggested that single window clearance for the infrastructure sector projects, including power projects, would go a long way in attracting investment in this sector."

Raman Aggarwal, director of Finance Industry Development Council, a representative body for non banking finance companies, or NBFCs said that industry has asked for higher depreciation rate for construction equipment.

"We have also asked for some relaxation in taxation structure, especially for non-performing assets," he said.

Finance Minister Pranab Mukherjee said that this is a very challenging year for everyone and the growth rate would be around 7.2% during the current year.