Bad debt provisioning: RBI urges govt to give full tax deduction to banks

The Reserve Bank of India on Tuesday urged the Finance Minister Arun Jaitley to allow banks to get full tax deduction on the provisions made towards bad debts.

Such a facility of full tax deduction will shore up banks, which face challenges from demonetisation and sluggish loan recoveries in the ongoing third quarter. The RBI was represented by Deputy Governor SS Mundra at the pre-Budget meeting with bankers called by the Finance Minister.

During the meeting, banks also pitched for extension of the additional 60-day window granted to them for recognition of a loan account as sub-standard. The RBI had on November 21, nearly a fortnight after the demonetisation announcement of November 8, temporarily relaxed prudential norms for banks and non-banking finance companies, allowing short-term deferment of classification of loan dues of small borrowers as sub-standard.

They were given an additional 60 days beyond what is applicable to them for recognition of a loan account as sub-standard, thereby saving them the burden of provisioning.

The relaxation in norms applied for dues payable between November 1 and December 31. Banks now want this facility extended even for dues payable beyond December 31, sources who attended the meeting said.

As far as the tax break on bad debt provisioning goes, banks can currently get a deduction only up to 7.5 per cent of the total income. The RBI and some bankers (who attended the meeting) urged Jaitley to allow 100 per cent deduction on bad debt provisioning in the upcoming Budget, sources added.

Meanwhile, the Indian Banks’ Association (IBA) has pitched for deferment of adoption of Ind AS by banks for a couple of years, it is learnt. Banks are required to adopt Ind AS — the Indian equivalent of IFRS — from April 1, 2017.

The Finance Industry Development Council, a representative body of asset-financing non-banking finance companies, suggested that eligibility norms for NBFCs to get refinance from MUDRA should be made favourable.

This would enable small and medium-sized NBFCs to shift from acceptance of public deposits and instead get refinance from MUDRA, Raman Aggarwal, Chairman, FIDC, told BusinessLine .

At the pre-Budget meeting, FIDC also made a case for removal of the minimum loan ticket size of ₹1 crore for NBFCs to invoke the Sarfaesi law for recovery of dues.