The country’s top bankers on Monday sought a reduced lock-in period of three years for tax saving deposits, instead of five years at present, to channelise more funds into the banking sector even as Finance Minister P. Chidambaram stressed that there could not be any sustainable economic growth without a vibrant and viable financial market architecture.
At a pre-budget consultation here, taking the cue from the Finance Minister’s opening remarks that the existence of efficient financial markets — both banking and capital markets — was paramount for achieving economic growth, bankers also pitched for permission to issue tax-free bonds, like other financial institutions do, for raising funds and augmenting business.
Among other demands, chief executives and representatives of 22 banks and financial institutions sought an increase in the TDS (tax deducted at source) limit on fixed deposit to Rs.25,000 on interest earned as against the present cap of Rs.10,000 and also argued in favour of tax exemption of Rs.20,000 under Section 80CCF for investing in infrastructure tax-free bonds and suggested inclusion of housing sector in the infrastructure segment.
In his opening remarks, Mr. Chidambaram pointed out that efficient intermediation by financial markets lead to higher economic growth by increasing savings and optimal allocation for productive uses and asserted that banks and other intermediaries, including NBFCs (non-banking finance companies), insurance, pension and mutual funds, are mechanisms to channel savings to investment. “They have the capacity to promote economic growth as they allocate savings to those investments which have potential to yield higher returns,” he said.
Explaining the significance of some of their demands — such as the three-year lock-in on tax saving bonds — to the media here after the meeting with the Finance Minister, State Bank of India (SBI) Chairman Pratip Chaudhuri said: “Tax saving bonds are already there [with banks]; tax saving deposits are already there. So there was a requirement that this lock-in period should be reduced from five years to three years on the tax saving deposits to bring it in line with tax saving ELSS (equity linked saving schemes)”.
Likewise, on the demand for tax-free bonds, the SBI chief said: “Some of the banks...made a request that they should also be allowed to issue tax-free bonds as has been allowed to other financial institutions because banks have good distribution network and can finance infrastructure projects”.
Apart from the SBI CMD, among the other top bank executives who attended the meeting were Indian Overseas Bank CMD M. Narendra, UCO Bank CMD Arun Kaul, Punjab National Bank CMD K. R. Kamath, ICICI Bank MD Chanda Kochhar, Axis Bank MD Shikha Sharma and Chairman of HDFC Ltd Deepak Parekh.
On the issue of gold imports, bankers viewed that since imports of the yellow metal were connected to jewellery exports also, any efforts to reduce the inbound shipments would affect jewellery exports.
As for capital markets, Mr. Chaudhuri said either the Securities Transaction Tax (STT) should be abolished on equity market or a Commodity Transaction Tax (CTT) should be imposed on commodity trading to attract investment in the capital market.
“...much of the money which could have been invested in the stock market is now going into this commodity market. Either you have a commodity transaction tax or you abolish the STT,” he said.