?Tax on profit will hit co-op banks? | india | Hindustan Times
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?Tax on profit will hit co-op banks?

TOP BRASS in the cooperative banking sector is worried about its future in the wake of Union Finance Minister P Chidambaram?s announcement in the union Budget to tax cooperative bank profits.

india Updated: Mar 20, 2006 13:31 IST

TOP BRASS in the cooperative banking sector is worried about its future in the wake of Union Finance Minister P Chidambaram’s announcement in the union Budget to tax cooperative bank profits.

“Its an anti-cooperative measure which will break the back of cooperative banking,” says National Federation of State Cooperative Banks Ltd (NAFSCOB). Earlier, cooperative banks enjoyed exemption under Section 80 (P) which the Finance Minister has withdrawn in the Union Budget 2006-07.

The Maharashtra Government has already voiced its concern over the measure and the MP Government has also decided to take up the issue with the Union Finance Minister.

The State Cooperative Banks (SCBs) feel under banking regulation cooperative banks have been provided a special status, as their major clientele is the farm sector unlike commercial banks that have high-profile clientele and high profits.
At present Rs 700 crore has been assessed as operating profit for SCBs, and if this amount is taxed , the banks could crumble.

“We’ve written to the Prime Minister and Union Finance Minister, urging them to roll-back the measure,” added a member of the federation.

The NAFSCOB- an apex forum for the cooperative banks— has also demanded a clear-cut demarcation between the urban cooperative banks (UCB) on one hand and State cooperative banks and district central cooperative banks ((DCCBs) on the other.

“Largely UCBs, which are under direct RBI control, have collapsed time to time but SCBs are mistakenly kept in the same bracket, giving the latter a bad name,” remarked a NAFSCOB member.

“UCB and SCB’s operation and functioning are different and should be treated separately,” said NAFSCOB director K Sudhakar, who was in town to preside over a workshop of cooperative banks. “Cooperative banks are profit-making institutions and not charitable centres, and it’s high time the Government along with banks take measures to improve their health. They are major financial institutions to provide credit to farmers,” the director added.

The SCBs are also quite apprehensive about the Finance Minister’s announcement to go for agricultural lending at seven per cent interest rate.

“Our fund cost is itself 6.5 per cent. How could we lend at seven percent?” asks a senior federation member. About Vaidyanathan Committee recommendations to revive the cooperative banks, the NAFSCOB feels that proper implementation is must.

“Like Madhya Pradesh, which has earmarked Rs 188 crore for revival, other State Governments too should follow the path,” the federation feels.

Simultaneously, cooperative banks through the federation have planned to represent the prime minister, union finance minister, agriculture minister and Reserve Bank of India to provide schedule status to SCBs and formulate a strategy in its policy towards nurturing and strengthening of the banks – primarily into agricultural lending.