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Taxing times or relaxing: Banking
October, 07th 2008

The advance tax payments by the banking sector exhibit a mixed performance in the quarter ended September 30, 2008. There are pockets of brilliance with shades of conservatism. Industry pundits, however, believe that Indian banks are overall cautious in their profitability perceptions post-US financial system crisis.

Among the large players, even as advance tax payments by State Bank of India (SBI) and HDFC Bank increased by 48% and 15%, respectively, Indias largest private bank, ICICI Bank, and public sector player Central Bank of India paid a much lower advance tax during the second quarter, reporting a decline of 22% and 30% over payments made during similar period previous financial year.

Says Robin Roy, associate director, PricewaterhouseCoopers (PwC) India: While ICICI Banks losses on treasury income gets reflected in its advance tax numbers, the increase in payment of advance taxes by Indias largest commercial bank is significant and shows its core banking solutions are doing well.

SBIs assets have also gone up. On why other public sector banks like Union Bank of India showed a decline in advance tax payments, Roy says its due to the fact that PSU banks dont possess a strong treasury team.

The decrease in the advance tax payments by some major banks, believe industry analysts, is not a result of any fundamental financial problem.

Banks are just being conservative. After filing advance taxes, it becomes difficult to recoup the amount. Therefore, with the present liquidity crunch, banks might be thinking of putting the funds to some other judicious use rather than giving it way as advance tax, explains a banking analyst.

But not all banks have been reasonable in approach. For instance, Andhra Bank and Barclays Bank posted a quarterly increase of 178.89% and 500%, respectively, in their advance tax payments, though it comes from a smaller base.

SIDBI and BNP Paribas have also joined them to extend the list of banks showing a tremendous increase in quarterly advance tax payments ranging from 50-230%. For banks, the next two quarters will set the tone. Historically, the second half is a busy ride, says Roy.

For the uninitiated, advance tax figures along with other various financial indicators are used as proxy to estimate a companys profits during the given quarter and for the full year.

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