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Poornima Mohandas

Mumbai , Nov. 7

IN addition to direct tax collections and pension disbursements, another pie where new age private banks have been permitted to dip their hands into indirect taxes - excise and service tax collections.

Traditionally an area exclusive to state-run banks, the presence of new private sector banks is expected to usher in competition and ensure "all round better service'', possibly denting the share of the market leader, State Bank of India.

The four institution-backed banks - - ICICI Bank, HDFC Bank, UTI Bank and IDBI Bank - - will commence indirect tax collections in 13 commissionerates on a pilot basis from November 15.

This permission is exclusive to the four institution-backed new private banks, which were permitted to collect direct income-tax, disburse pensions and handle expenditure related functions of all Central Government Ministries/Departments from October 1.

Said Mr H.P. Rao, Principal Chief Controller of Accounts, Central Board of Excise and Customs, "The four institution-backed banks will start collections in nine commissionerates in Mumbai and in four in Delhi. Their role will gradually be extended to the other metros.''

These four banks may soon be permitted to gather customs duties, but there are some technical issues to be sorted out with relation to the collection mechanism.

Banks are also in negotiations with various State Governments to collect sales tax.

Private banks are enthusiastic about governmental business and say "it's a matter of pride to be recognised by and to be associated with the Government,'' said a senior HDFC Bank official.

On the commercial front is the commission paid at Rs 1.18 per Rs 1,000 of turnover, which is quite attractive. Negotiations are under way for increasing the commission fees, but Reserve Bank of India seems to be of the opinion that the present fees are too high and is unlikely to raise the same, said a banker.

Despite the large amounts involved, banks do not get much of a float before the tax money is transferred to RBI's Central Account Section (CAS) in Nagpur with the average float being just one day and logistics often a tangle, since the funds have to be remitted to the treasury department in Mumbai for profitable deployment, explained Mr D.C. Jain, Head-Government Business, IDBI Bank.

IDBI Bank has a target of garnering Rs 5,000 crore in terms of total collections by way of direct and indirect taxes in the first year, i.e., by October 2004.

Cross-selling to the Government is an area where these banks foresee huge amount of opportunities; all are aggressively making presentations to various Ministries offering them everything from salary accounts and subsequently the whole retail suite plus structured products. They are also eager to handle expenditure related payments.

HDFC Bank has been the front-runner in terms of direct tax collections since it was given permission to do so in April 2001 before any of the others.

For the year 2003, the bank amassed Rs 9,000 crore through 150 of its branches.

As on June 2003 a substantial chunk of Government business of over Rs 8,90,000 crore was handled by State Bank of India and its associates and their share was at 70 per cent in State Government transactions, 60 per cent in civil Ministries, 50 per cent in non-civil Ministries (defence, railways, posts, telecommunications), 28 per cent in Central Board of Excise and Customs and 48 per cent in Central Board of Direct Taxes which may decline in days to come.

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