PRE-BUDGET PANEL DISCUSSION. ‘Banks should be given sops for NPA provisions’

Reduction in interest rates is not the be-all and end-all for perking up loan demand from micro, small and medium enterprises and large corporates, feel financial sector experts.

Addressing the audience at the BusinessLine ‘Count Down to Union Budget, 2017,’ event on Thursday, Arun Tiwari, Chairman and Managing Director, Union Bank of India, said, “For us, the raw material is deposits. The moment you talk to us about reducing lending rates, we will have to reduce the rates on deposits. And with inflation where it is (and it hurts the poor the most), we can’t take deposit rates below a certain point.

“As a thumb-rule the finance cost is just about 9 per cent of the production cost. In fact we should try to find answers in other places where for example your inventory holding and receivables have gone up, tax refunds are stuck for many years, they all impact your business. These issues need to be addressed. Only interest rate reduction is not going to do any good.”

Many traditional banks that focused on giving corporate loans are now focusing on retail but soon they’ll start chasing the corporates again once the demand picks up, Tiwari said and added that public sector banks are still much better off in terms of governance.

Suggesting ways to improve the condition of the banks, RK Gupta, Executive Director, Bank of Maharashtra, said, “In order to improve efficiency in the banking system, banks should be given tax concession on the provisions they make towards the non-performing assets.”

Umesh Revankar, MD and CEO, Shriram Transport Finance Corporation, said when MUDRA was introduced two years ago, it was predominantly to re-finance the unfunded. But more than 90 per cent of it I still feel only goes to banks. So, MUDRA is not reaching micro finance institutions and NBFCs.

Referring to the differential tax treatment given to multiple retirement vehicles such as EPFO and NPS, Sandeep Shrikhande, CEO, Kotak Pension Fund, said: “Let there be a level playing field. Let the tax rates be same for everyone and if that means making EPFO taxable then it should be done to bring in parity.”

For Indian pension market, the biggest issue is size. It is insignificant compared to global market, he added.

Deepak Premnarayen, President, IMC Chamber of Commerce and Industry, said the biggest problem of the chamber’s members, especially those having small units, is the cost of money, market access and technology access.

“The big issue I have is the cost of money. If my interest cost is 15 per cent and overseas it is 2 per cent, I am not competitive. I may be competitive on labour cost,” said Premnarayen.

The IMC President observed that banks have also had a situation on hand – they have to deal with SMEs who are not structured, which don’t have the ability to keep balance sheets because they are ‘mama-papa’ outfits.

“So, there have been issues but you (bankers) have got to change your mindset. You can’t start with a philosophy that this man is a crook or if you don’t repay me the following consequences you will face. Now as an entrepreneur you need the ability to fly. That is where private equity, venture capital, these things have started to happen in my country. I see that as a great opportunity. But interest costs have to be down.”

Experts pointed underscored the the low capacity utilisation in the industry leading to low investments. “Capacity utilisation in many industries is only at 50 per cent right now. It needs to go up to 80 per cent in order to attract more investment,” said Prakash Agarwal, Director & Co-Head — Financial Institutions, India Ratings.

The IMC chief said the government is adopting a stick and carrot approach when it comes to taxation. But they need to ensure that they use the stick very strongly. From the carrot perspective, taxes need to go down.”

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