RBI wants government to end tax sops for special deposit schemes

15 September 2008

Mumbai: The government should do away with tax-related benefits and other incentives for special deposit schemes, as they constrain deposit mobilisation efforts of banks, the Reserve Bank of India has said.

The special deposit schemes announced by the government from time to time hamper banks' efforts to garner funds from the public, the RBI said in its `Report on Currency and Finance.'

''The policy anomaly arising out of tax benefits needs to be removed to provide banks a level-playing field," the report said.

The RBI report also cited other operational constraints of banks that are often subjected to various regulatory requirements, such as directed learning, prudential regulations and limits on capital market exposures, whereas non-bank bodies do not face such restrictions.

''While these measures promote financial stability, they constrain the diversification opportunities thrown by a developing financial system," it said.

The non-bank institutions, the report said, also enjoy the advantage of having a leaner cost structure and can quickly adopt new technology to offer higher returns to investors.