Call this the demonetisation effect. Coming in support of banks, the Reserve Bank of India (RBI) on Tuesday urged the Finance Minister Arun Jaitley to allow them (banks) to avail of full tax deduction on the provisions made towards bad debts.
Any such facility of full tax deduction is expected to come in handy for banks, who are faced with challenges of demonetisation and sluggish loan recoveries in the ongoing third quarter.
At the pre-budget meeting convened by Jaitley, 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 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.
This relaxed norm applied for dues payable between November 1 and December 31. Banks now want this facility extended even for dues payable beyond Decmber 31, sources who attended the meeting said.
As far as the tax break on bad debt provisioning goes, the bank’s can currently avail of deduction only up to a limit of 7.5 per cent of total income. The RBI and some bankers (who attended today's meeting) have urged Jaitley to allow 100 per cent deduction on bad debt provisioning in the upcomiong budget, sources added.
Meanwhile, the Indian Banks' Association (IBA) at today's meeting 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 -- Indian equivalent of IFRS -- from April 1, 2017.
NBFC wishlist
Finance Industry Development Council, a representative body of asset-financing Non Banking Finance Companies, suggested that eligibility norms for NBFCs to avail of refinance from MUDRA should be made favourable.
This would enable small and medium-sized NBFCs to shift from acceptance of public deposits and instead avail of 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 Rs 1 crore for NBFCs to use the SARFAESI law for recovery of dues.
The Centre had on August 6, 2016 notified a 2015-16 Budget provision (15 months back) allowing NBFCs to avail of the SARFAESI law for recovery of dues. However, it has been stipulated that the SARFAESI law facility would be available only in cases where the minimum lending ticket size is Rs 1 crore. This had come as a big surprise to the NBFC sector.