Urban co-operative banks, under the aegis of Sahakar Bharati, have sought intervention of the Finance Ministry and the Parliamentary Standing Committee on Finance to address a host of issues, including doing away with income-tax levied on them.
Emphasising that co-operatives are not organisations for profit, Satish Marathe, President, Sahakar Bharati, said withdrawal of income-tax will help urban co-operative banks (UCBs) improve their net worth and, consequently, their risk-bearing capacity.
In this regard, he observed that UCBs do not have an enabling provision to raise capital from the general public/market. Further, because of limited scope under the existing State and Multi-State Co-operative Societies Act to raise capital, the entire surplus is retained in the Society after payment of dividend to members. All UCBs are registered as cooperative societies under the provisions of either the State Cooperative Societies Act of the State concerned or the Multi-State Cooperative Societies Act, 2002. As at March-end 2014, there were 1,589 UCBs in the country.
UCBs are member-owned and provide savings, credit and other financial services to their members. Membership is based on a common bond, a linkage shared by savers and borrowers who belong to a specific community, region, or profession.
Pointing out that many countries in Asia, Africa, Latin America and Caribbean do not tax credit unions (co-operative banks), Marathe said his organisation has made a fervent plea to Finance Minister Arun Jaitley and Chairman of the Parliamentary Standing Committee on Finance, M Veerappa Moily, to withdraw income-tax on UCBs.
Sahakar Bharati is a non-government organisation (NGO) which promotes formation of co-operatives in various fields to empower the economically weak.
Tax deduction at sourceReferring to the new provision inserted in Budget 2015-16, requiring all co-operative banks to deduct tax at source if the interest paid to depositors exceeds ₹10,000, Marathe said depositors who are also shareholders in UCBs should be exempt from such taxation.
Since UCBs are capital constrained, withdrawal of income-tax on them and doing away with TDS on interest earned by depositor-shareholders will help these banks shore up their resources to expand their business, explained Marathe.
Recovery lawHe also said that the NGO has sought the cover of loan recovery law, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, for UCBs registered under the State Co-operative Societies Act. Currently, UCBs registered under Multi-State Co-operative Societies Act can resort to recovery under Sarfaesi.
Since UCBs traditionally have been extending credit to micro and small enterprises, Sahakar Bharati wants credit guarantee cover to be extended to such loans. Currently, the credit guarantee fund scheme, among others, covers public sector banks, private banks, foreign banks, and regional rural banks.
These banks also want the Centre to allow them to open accounts under the Pradhan Mantri Jan Dhan Yojana and Sukanya Samriddhi Yojana.