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Banks pay 38% higher advance tax in Q3
December, 30th 2008
Bucking the trend, the banking sector has paid 38 per cent higher advance tax in the third quarter of the current fiscal, as the banks expect robust earnings because of treasury profits. The higher tax paid by the banks comes in overall 22 per cent decline in advance tax collections in the third installment that was due by December 15. The banks managed to perform well due to higher income from both treasury as well as normal banking operations, said Bank of Baroda (BoB) Chairman and Managing Director MD Mallya. He said BoB is not revising the revenue and profit targets for the 2008-09 fiscal, despite overall slowdown affecting the economy, which is projected to grow at less than 7 per cent in the second half. Advance tax are paid by companies and individuals based on their estimate of tax payable for the current year. In general, growth in advance tax payment means growth in business profits. Yield on government securities, which is the ratio of the price and return offered by the security, has dipped sharply in six months. For example, the yield on a ten-year government security declined to 6.5 per cent in December as against 9.5 per cent in June this year, resulting in a substantial increase in the price of the bond. The dip in the yield, which means increase in price of the underlying securities, could lead to higher treasury profits for the banks that means buying at lower price and selling at a higher price. Banks have paid advance tax of Rs 7,769 crore during the third quarter, which was due on December 15, as against Rs 5,637 crore in the corresponding period last year. Cumulatively, advance tax paid by banks has gone up 26 per cent till December in the current fiscal over the corresponding period last fiscal. Whereas, the cumulative advance tax collection from all companies and individuals have declined 2.6 per cent during the period, putting pressure on the direct tax collections. State Bank of India, which is countrys largest lender, is now just a shade behind state-run gas exploration firm Oil and Natural Gas Corporation, the highest advance tax payer in the country. The state-run banking major paid 56 per cent more in advance tax at Rs 1,700 crore as compared to Rs 1,088 crore paid during the corresponding period last year. ICICI Bank posted a 25 pre cent increase in advance tax. Punjab National Bank, which is countrys third largest bank, has posted a massive 250 per cent increase in advance tax payment. State Bank of Patiala, a SBI associate bank, saw 113 per cent increase in advance tax payment at Rs 194 crore in the third quarter this fiscal as compared to Rs 91 crore in the same period last year. The higher treasury profits come at a time when banks are expected to add non performing assets (NPAs) because of the slowdown in the economy.
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