16 Dec 2017 13:33 IST

Bankers demand full tax deduction on NPA provisions

Also seek tax breaks on haircuts taken under insolvency resolutions

Faced with weak balance sheets due to high NPA levels, bankers on Friday urged Finance Minister Arun Jaitley to provide full tax exemption on the provisions made by them towards bad debts. This is warranted especially when the high NPAs in the banking system have blown a hole in the balance sheets of most banks, they said in their pre-budget meeting with Jaitley here at North Block.

Currently, banks are allowed tax deduction of only 8.5 per cent of the amount provided. Some banks also sought tax breaks on the haircuts that they may have to take under the resolution process provided in the Insolvency and Bankruptcy Code (IBC).

Emerging out of the pre-budget meeting, Shikha Sharma, Managing Director and CEO, Axis Bank, said tax breaks should be given to banks taking haircuts for reducing the debt of corporates.

Daunting challenge

Banks face a daunting challenge of recovery of nearly ₹10 lakh crore NPAs. Much would depend on the insolvency framework provided under the Insolvency and Bankruptcy Code enacted in 2016. Already, 34 cases (first list of 12 cases and 22 in the second list) have been referred to the National Company Law Tribunal.

At the pre-budget meeting, a banker had also suggested measures to fortify the current NCLT structure. First, banks should be allowed to undertake standard provisioning as per underlying income recognition and asset classification, instead of accelerated provisioning for companies referred to NCLT under IBC to help lenders maximise recoveries.

Second, the Centre should allow bank financing for domestic M&A of weak companies with good underlying assets to accelerate NPA resolution, with adequate regulatory safeguards, according to this banker.

Raman Aggarwal, Chairman, Finance Industry Development Council (FIDC), told BusinessLine that he had, on behalf of NBFCs, sought parity between the tax treatment provided to them and those available for banks and housing finance companies. FIDC is a self regulatory organisation representing the asset financing NBFCS.