Jaitley calls for ‘out-of-box’ solutions for banks’ new challenges

The current financial year 2016-17 is not a conventional year as major reformative decisions have been taken and banks will have to think out-of-the-box, although there are no serious challenges as far as structural changes are concerned, finance minister Arun Jaitley said.

Jaitley said since a series of steps are required about what the government can do and what the banks can do, some out-of-the-box thinking is necessary.

Making his opening remarks at the pre-budget consultative meeting with the representatives of banks and financial institutions the finance minister further said that since the banking sector is the backbone of the economy the solutions should also come from the banking sector.

Bankers and FIs made a number of suggestions for consideration by the government, which included recapitalisation of banks in the current financial year 2016-17 as well as in the next financial year 2017-18. Banks also sought full tax exemption for NPA provisioning keeping in view their profitability.

Post demonetisation, liquidity in banks have improved. This may impact saving deposit rates. This makes senior citizens more vulnerable as their income is adversely affected. So, some sort of exemption need to given to them under the Income Tax Act so that they have a decent income through their deposits,they pointed out.

On the implementation of the GST,  banks pointed to the need for a central registry for GST compliance by the banks which have branches on pan India basis. In case of digitization, digital acceptance infrastructure is loss making at present. So digital acceptance infrastructure need to be incentivized.

Another suggestion was that there is need for exempting banking correspondents transactions from service tax.

It was informed that the overall mood about demonitisation in rural areas, including among the farmers, is largely positive. However, four sectors need special attention. These are:

• Vegetable growers who depend on cash for their day to day dealings and can't hold their crop for long as it is perishable;
• Brick kiln labourers as their owners used to pay them in cash;
• Transport industry in rural India; and
• Plantations in the South.

It was suggested that there is urgent need for special efforts for digitisation of primary agriculture cooperative societies, regional rural banks and co-operative banks to promote digital transactions and e-payments.

Dairy sector has huge potential for employment generation. Milk production in India is increasing but milk processing capabilities and infrastructure required for the same has not increased accordingly. Hence, dairy processing sector requires fresh infusion of funds. It was suggested to create a new dairy infrastructure development fund for this purpose.

Use of latest and high technology in agri-sector needs to be improved. A lot of people are coming forward to set-up new start-ups in agri-sector. A Krishi Udyam Nidhi be created for helping such start-ups. Also IT applications in agriculture need to be given further boost.

It was also suggested that NABARD also need capitalization of worth Rs2,500 crore.

After demonitisation, the budget should focus on boosting the consumption to create demand. Urban local bodies should be encouraged to collect property tax and utility tax through online means.

The Finance Bill should mandate that all wages should be paid by the employers through banking channel or digital mode.

Many shopkeepers don't sell using digital means as they do not want to pay taxes. So there is need to give some tax rebate to these shopkeepers to use digital means and for better compliance. Same way, consumer may also be given a tax rebate at the year-end if his digital purchase is more than a certain amount.

Micro finance sector has seen a little increase in default as most of the people pay in cash. Also in SME sector, employers are waiting for the withdrawal limits to be raised to start paying their workers.

Axis Bank representative specifically listed out the steps taken by bank management against some erring officials and assured the finance minister that as a bank, they are fully committed to highest level compliance of banking and Government prescribed norms and standards.

To kick start demand in the economy, low cost housing need to be encouraged. Ownership of a plot or land is required to avail finance for housing. Some customers do not own land in their own names, hence this norm may be relaxed.

In digital payments, issues of internet connectivity are there. Hence, each district may be allotted to a particular telecom company to improve internet connectivity.

Mutual funds and life insurance companies provide employment to a large number of youths through their distribution network. Some sort of incentive should be given to them. To fight unemployment, a provision should be made that if a firm, that employ a certain number of people, increases the number of jobs by a certain degree, then 2-3 per cent tax relaxation would be given to it. This directly links tax rates with job generation.

As far as the government's financial inclusion drive is concerned, a venture fund for members of scheduled caste was launched with Rs200 crore. Under this, 71 proposals have been screened so far. So the government should continue to provide Rs200 crore more in next budget. And a similar fund for STs should also be created.

Skilling of the personal for ongoing digitization drive is an imperative. Also revenue model for business correspondence model to be revamped as many of these business correspondents are struggling and leaving the companies after some time.