The Hindu Business Line : What banks wish for in the Budget

OCCASIONAL shocks such as Citizens Co-operative Bank and GTB apart, banks have never failed to be in the news whenever there were utterances about consolidation and divestment.

Though what usually matters more to the banking sector is the Monetary Policy from the Reserve Bank of India, the Budget too plays its role by pronouncing policy shifts.

For instance, in the July 2004 Budget, Mr P. Chidambaram had spoken of allowing banks with strong risk management systems greater latitude in their exposure to the capital market.

This year too, there are indications that the Budget will devote some attention to the sector.

Consolidation involves mergers and acquisitions, and so it would be reasonable to expect that the Finance Minister makes it easier for prospective pairs to tie the knot.

The facility of carry forward and set off of accumulated losses and unabsorbed depreciation, currently available only to nationalised banks, may be extended to mergers involving private sector banks or a bank and a financial institution, according to Mr Ashwani Puri of the Financial Services Advisory at PricewaterhouseCoopers.

Other wishes that dominate the dreams of banks and financial services are an increase in tax deductibility of provisioning for non-performing loans made in accordance with the RBI classification and provisioning requirements, and a fillip to asset reconstruction activity.

For starters, the euphemistic phrase `asset reconstruction' is inextricably tied to bad loans that banks desperately need to flush from their balance sheets.

"Granting of tax exemption to trusts set up for asset reconstruction in recognition of their `pass through' nature, on lines similar to that available to the mutual funds industry would be welcome," says Mr Puri.

He is also of the view that a recasting of provisions relating to long-term savings may help the pensions industry.

While any hike in FDI in banks and insurance sectors may meet with stiff resistance from the Left, it is likely that FDI in asset reconstruction companies (ARCs) may see some light next week.

So too, we may have policy guidelines for investment by FIIs in security receipts issued by ARCs.

"Good resolutions are simply checks that men draw on a bank where they have no account," said Oscar Wilde.

But banks seem to be quite bullish on hopes of their needs accounted for in the Budget.

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