In a big relief to banks struggling with bad loans, the government on Budget day proposed tax concession on provisions for NPAs while announcing capital infusion of Rs 10,000 crore for state-owned lenders.
It also proposed that tax on interest will be levied on actual receipts and not on accrual basis in respect of Non Performing Asset (NPA) or bad loan accounts.
BSE banking index surged 2.76 per cent, a full percentage point more than the BSE Sensex itself.
Main provision for banking sector in Budget 2017:
-- Proposal to increase allowable provision for Non-Performing Asset from 7.5 per cent to 8.5 per cent. This will reduce the tax liability of banks.
--Proposal to tax interest receivable on actual receipt instead of accrual basis in respect of NPA accounts of all nonscheduled cooperative banks as well, at par with scheduled banks. This will remove hardship of having to pay tax even when interest income is not realised. Currently banks can claim deduction in respect ofprovision for bad and doubtful debts.
-- Rs 10,000 crore infusion to public sector banks in the next fiscal and more will be provided if required.
-- As per the Indradhanush plan, the public sector banks will be provided with Rs 10,000 crore in the next fiscal.
-- Additional allocation would be made if required," he said. Under Indradhanush roadmap announced in 2015, the government will infuse Rs 70,000 crore in state banks over four years while they will have to raise a further Rs 1.1 lakh crore from the markets to meet their capital requirement in lines with global risk norms, known as Basel III.
--Public sector banks has been given Rs 25,000 crore in each fiscal, 2015-16 and 2016-17.
Besides, Rs 10,000 crore each would be infused in 2017-18 and2018-19.
-- The government has already announced fund infusion of Rs.22,915 crore, out of the Rs 25,000 crore earmarked for 13 PSBsfor the current fiscal. Of this, 75 per cent has already been released to them.
The first tranche was announced with the objective of enhancing their lending operations and enabling them to raise more money from the market.