Centre urged to exempt weak banks from interest tax

Our Banking Bureau

Mumbai, Feb 22: The All India Bank Officers Confederation (AIBOC), the largest officers' organisation in the banking sector, has called upon the centre to exempt the corporate borrowers of three weak public sector banks--Indian Bank, United Bank of India (UBI) and Uco Bank--from interest tax. The move will enable the weak banks to offer "competitive" interest rates and boost their credit offtake, AIBOC said in a white paper on weak banks, recently submitted to the finance ministry.

The officers' organisation has also opposed the concept of narrow banking and urged the government to pass on the public sector undertakings' (PSU) business to the state-run weak banks to bring them back to health.

According to AIBOC, the reasons behind the poor performance of these banks are high cost of funds, high credit deposit (CD) ratio, low interest spread, high percentage of non-performing assets (NPAs), poor credit management, dependence on market borrowings and poor manpower management.

Some of the measuressuggested by the AIBOC for the perusal of RBI and the finance ministry are the following:

The NPAs which are the outcome of the lending prior to 1992 to be dealt with separately, taken out of the balance sheets,

The government should transfer a considerable part of its transactions to the weak PSU banks for the benefit of low-cost government funds and to increase the interest spread,

These banks can be entrusted with business of various state governments and central government so that their non-fund based income increases considerably,

The RBI should monitor closely the performance of these weak banks in such a manner that effective guidance and interference is available when the situation warrants,

The centre must subsidise the gap of revenue channelised to the social sector,

The RBI should monitor the performance of the weak banks so that effective guidance and interference is available as when the situation warrants,

The interest taximposed on borrowers to these banks may be waived for some time to give the banks a cutting edge in offering competitive interest rates to their borrowers,

The boards of management of the weak banks should be reconstituted with professional hands in management and banking,

Banking being a commercial activity, decision makers at various levels should not be treated at par with government personnel,

The concept of narrow banking should not be introduced as it will drive away the no cost deposits for current account holders/ business community.

"In the ultimate analysis we are of the opinion that since 1991, these so-called weak banks have been growing in all parameters and showing distinct sign of recovery from the past. Hence, they cannot be termed as weak banks by any definition," the AIBOC white paper pointed out.

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