Finance minister Pranab Mukherjee may provide some relief to banks hit by steadily rising bad loans in the forthcoming budget.
The government could look at providing greater tax concessions to banks for provisioning of their non-performing assets (NPA), which have steadily risen in the last one year.
Loans to five sectors — telecom, textiles, power, aviation and the overall infrastructure industry — are particularly stressed, a chairman of a public sector bank told HT on the condition of anonymity.
The Reserve Bank of India (RBI) has asked all banks to furnish data on their exposures to the above sectors.
Banks will likely be offered greater tax deduction on NPAs, as they do not earn income from these assets, a government official said. Tax breaks for bad loans, along with additional cash infusion to public sector banks, are also likely to be announced, the official added.
“The NPA level of banks which has risen significantly in the last one year, is set to rise further with the economy slowing down and this is one area which needs to be looked at,” a senior government official told HT on condition of anonymity.
The gross NPA of public sector banks had already touched Rs 71,047 crore in March 2011. The amount has further risen drastically in the last one year. The State Bank of India, the country largest lender is saddled with over 32% of the total gross NPA level of of all state-owned banks, according to official data.
The move comes in the wake of global rating agency Moody’s recent downgrade of SBI. The ratings firm blamed the pull-down to a shortage of capital in SBI to cushion bad loans or contingencies and “weakening asset quality” — implying loans that do not yield interest.
The government will infuse more capital in state-owned banks and financial institutions to ensure that their capital reserves do not remain uncomfortably close to the minimum stipulated levels over a longer period of time.