MoF considers tax benefits to boost deposit growth
November, 22nd 2006
The finance ministry has indicated that it is ready to provide further tax benefits on savings to boost deposit growth and an announcement to this effect may be made in the coming budget as well. We are ready to provide further tax incentives if required and suggested by the Indian Banks Association(IBA), official sources said. Finance minister P Chidambaram, while presenting the Union budget for 2006-07, announced that fixed deposits in scheduled banks for a term of minimum five years would qualify for tax exemptions.
IBA, it may be noted, is preparing a concrete report for deposit mobilisation. However, we need to wait for full report and based on the report a decision would be taken, sources said.
Meanwhile, sources said that the IBA is likely to ask banks to focus on correct and competitive pricing, product development, increasing the number of branches and aggressive marketing to push deposit growth and keep pace with a 31% credit growth.
Chidambaram in his review meeting with bankers earlier during the month said that banks must come up with a concrete strategy to boost deposit growth.Banks need to focus on product development by devising different products for different customers. Flexibility is key for customers and the one size fits all product would not help in any way, SC Gupta, chairman and managing director, Punjab National Bank, said.Corporation Bank CMD B Sambamurthy said that banks must make pricing competitive to attract customers. A large number of other avenues is available to customers now and banks must keep that in mind and accordingly price their products, he said.Though the finance ministry has said that there is no immediate pressure on liquidity and banks can sustain the credit growth for the next eight to nine months, they need to start mobilising deposits immediately to avert any liquidity crunch at a later stage.