With an aim to recover from the effect of demonetization, the Reserve Bank of India in a pre-Budget meeting with Finance Minister Arun Jaitley urged for full tax exemption on provisioning made for non-performing assets (NPAs) and the removal of service tax on digital transactions.It argued that 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.
Currently, banks and financial institutions are allowed deduction in respect of provision made for doubtful debts is only up to 7.5 percent of the total income. Thus, the RBI and some bankers sought to allow 100 percent deduction on bad debt provisioning in the upcoming Budget. PSU banks also sought higher capital infusion from the government saying they had not been able to carry out normal lending activity since demonetisation as their prime focus has been on exchanging notes and accepting old currency.
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, on November 21, had temporarily relaxed prudential norms for banks and non-banking finance companies. 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.