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Bankers want Budget to stress on financial discipline in States

Santanu Sanyal

CALCUTTA, Feb. 25

CONCERNED at the high rate of default of bank loans among States, leading bankers would like the Union Finance Minister to address the issue of enforcing financial discipline in different State Governments in the forthcoming Budget.

Right now, with most State Governments in a financial mess, bank loans advanced to them under various heads have virtually become NPAs (non-performing assets), requiring provisioning. This has become a matter of concern to a number of bankers.

What has been particularly upsetting for the bankers is the rising incidence of default among State Governments. Earlier, the number of defaulting State Governments as also the amount involved was small. Not so any more.

``This is certainly not the kind of situation we would like to see continuing for long, if not for anything else, in our own interest,'' observe some bankers, who have had a none-too-happy experience of participating in State Government-guaranteed bonds and projects sponsored by the State Governments.

The sanctity of guarantees provided by the State Governments, it is pointed out, is no longer there as a majority of them are unable to pay even the interest accruing on these instruments, let alone payment of the principal on maturity.

Even loans advanced for projects aided by the World Bank and other multilateral agencies run the risk of turning bad. On several occasions, the money received from the concerned multilateral agencies has been found to have been diverted to pay salaries a nd wages, among others, for which there has been no sanctioning of funds.

Several bankers have already drawn the attention of RBI to the need for enforcing financial discipline among State Governments. RBI, too, has discussed the matter with the different State Governments, at times forcing some to clear part of the dues out o f receivables from RBI. But what is needed is a more systematic approach towards tackling the problem, suggest the bankers.

The Union Government, it is emphasised, must prescribe limits on a State Government's power to provide guarantees. The need for necessary legal reform as a means to improving the recovery of loans too is stressed by bankers. There is no reason why the Ce ntre should feel shy about introducing international norms for recovery of loans when international standards have already been introduced in regard to provisioning and income recognition.

The outdated bankruptcy law in vogue only delays the recovery process. Unlike in western countries, there is no system of summary procedure and taking control of assets of the defaulters. In those countries, the bankers are not required to go to court to obtain orders for taking control of the assets.

Banking circles regret that the development of infrastructure sector has not picked up the way they had expected. The much-publicised mega power, road and port being in a limbo, banks that had pinned hopes on these projects for business are today disappo inted. The forthcoming Budget, they hope, will contain proposals to help these projects take off.

The other suggestions of bankers are: removal of TDS on interest on time deposits, repeal of interest tax, enhancement of deduction under Section 80L of the Income-Tax Act, setting up of more debt recovery tribunals, exemption from compulsory quoting of PAN/GIR nos while opening bank accounts, abolition of surcharge on income-tax, extension of income-tax exemption under Rule 89 of the I.T. Rules 1962 to private sector banks, simplification of rules for TDS on interest on deposits kept with banks, income -tax exemption for banks on income from locker rent and discontinuation of the system of collecting information on bank accounts by I-T authorities.