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PSBs want tax sops for infrastructure bonds
February, 12th 2007
Public sector banks are hoping that Budget 2007 would offer tax breaks to investors to draw them towards infrastructure bonds in a big way.

Bankers contend that the absence of tax exemptions hinder them from attractively pricing such bonds for investors.

The Punjab National Bank (PNB) Chairman and Managing Director, Mr S.C. Gupta, told Business Line that tax exemptions to investors are a "pressing need" for the banking industry to take up more infrastructure financing.

He pointed out that lending to infrastructure requires long-term funds.

"Lending to say power projects is for over 20-year period. Unless we have matching long-term funds, there will be asset-liability mismatches. Tax exemptions can help attract long-term funds to infrastructure bonds," he said.

On his Budget expectation, the Bank of India Chairman and Managing Director, Mr M. Balachandran, said that banks could be allowed to go in for long-term deposits that would be used exclusively for infrastructure financing, with a tax incentive.

"That is not there now. This will help banks raise long-term resources and would also be useful for managing our asset-liability mismatches," he said.

On term deposits, Mr Balachandran said that the lock-in period for such deposits should be reduced from five years to three years.

"The last budget's initiative of offering tax concession to those who keep money in five- year bank deposits has not found many takers because the lock-in period is too long. And the basic nature of a bank deposit is liquidity. It will be worthwhile for the government to consider shortening the deposit period to 3 years for the purpose of that concession," he said.

Mr Balachandran also said that premature encashment of deposits should be allowed. On the lending side, Mr Balachandran made a case for review of the previous Budget's decision to remove Section 10(23G) tax concessions.

"The Section 10(23G) advantage was withdrawn suddenly and has impacted us.

Given the emphasis on infrastructure, we need to have that kind of concession.

Atleast it should not be withdrawn for those advances already made, because, hoping that such concession will be there, we have lent at a rate much lesser than what we could have charged."

An estimated $320 billion of investments are required over the next five years for meeting the country's physical infrastructure needs.

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