Term deposits of five years and above placed with all Urban Co-operative Banks (UCBs) should be considered as investments eligible for deduction under Section 80C of the Income-Tax Act, according to Sahakar Bharati.

Currently, under the term deposit category, only deposits placed with a Scheduled Bank for a fixed period of not less than five years are eligible for the aforementioned deduction.

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As per the Reserve Bank of India’s (RBI) “Report on Trend and Progress of Banking in India 2019-20”, out of 1,539 UCBs, only 54 are in the Scheduled Bank category.

All banks which are included in the Second Schedule to the Reserve Bank of India Act, 1934 are Scheduled Banks.

Section 80C of the Income-Tax Act allows deduction of ₹1.50 lakh in respect of certain payments (life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc.) from a tax payer’s total income.

“All UCBs be made eligible to accept term deposits for a fixed period of not less than five years as investments eligible for deduction…

“….all financially-sound and well-managed UCBs be permitted to open Sukanya Samriddhi Account,” said Satish Marathe, Founder-Member, Sahakar Bharati, and Director, Central Board, RBI, in a note on expectations from the Union Budget 2021-22.

Currently, the Sukanya Samriddhi Account can be opened either in a post office or a branch of a “commercial bank”, authorised by the Central Government to open an account.

Sahakar Bharati is an all-India organisation for promoting co-operative movement in the country.

UCBs: MSME focus

Marathe said all UCBs should be made eligible as member lending institutions (MLIs) under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme as the focus area of these banks has always been lending to micro, small and medium enterprises (MSMEs).

Currently, of the 109 MLIs under CGTMSE, only three scheduled UCBs are members.

Considering the vast reach of the UCBs amongst the unorganised sector and micro enterprises, Marathe underscored that Mudra (Micro Units Development & Refinance Agency Ltd) Bank should enlist UCBs as its channel partner for extending financial assistance.

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Currently, MUDRA provides refinance to public sector banks, private sector banks, small finance banks, regional rural banks, non-banking finance companies and microfinance institutions.

Marathe emphasised that an amendment to the Banking Regulation Act is needed to permit all UCBs to finance Primary Co-operative Societies and Farmer Producer Organisations engaged in agro-processing activities.

Currently, the Banking Regulation Act prohibits both, Scheduled and Non-Scheduled UCBs from extending financial assistance to other Primary Co-operative Societies.

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