A task force of Reserve Bank of India has recommended restoring tax concessions to Regional Rural Banks (RRBs) for making them viable rural financing institutions and to increase their operational efficiency.
The provisions under Section 80(P) of Income Tax Act may be continued for another five years or till the restructuring process is completed, the panel on empowering RRBs headed by NABARD chairman K G Karmakar has recommended.
The finance ministry in 2006 had withdrawn the tax exemptions which treated RRBs as deemed cooperative societies.
Tax concessions for RRBs are needed as their cost of operations is high, profits margins are low and they cater to weaker sections of the society, the task force said.
It also suggested that the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act), which currently covers commercial banks, should also be extended to RRBs. The Act helps commercial banks securitise their bad debt.
It further recommended that RRBs should shed their image as narrow banks while trying to provide all financial needs through progressive use of technology. They should also create their own investment cells and develop risk evaluation system.
RRBs should also be allowed to issue bank guarantees, disburse salaries, introduce savings and credit products keeping in view the existing and potential requirements of their clientele, collect taxes and undertake other government business to improve their income.