Banks seek tax relief on infrastructure lending

Indian banks have sought tax relief on interest earned on infrastructure lending in the federal budget for FY10, to enable them to lend more to the sector.

"We are in favour of exemption of interest income from lending to infrastructure sector, to help lend more to the sector," B A Prabhakar, executive director at Bank of India , said.

The relief was withdrawn by the federal government in 2007.

Finance Minister Pranab Mukherjee will present the federal budget on July 6.

The sector expects several positive measures as banks play a key role as intermediates for demand and supply of funds with the economy showing signs of a revival, resulting in a pick-up in the investment cycle, bankers said.

Bankers have also sought rebate for long-term deposits, which are necessary for infrastructure funding. This will help pay high rate of interests for such deposits, Prabhakar said.

"Tax relief on earnings in infrastructure lending will boost growth in the economy as a whole," M.D.Mallya, chairman and managing director at state-run Bank of Baroda , said.

"More lending to the sector will help growth in sectors like steel and cement. It will also help rural growth," Mallya, also the newly elected deputy chairman of Indian Banks Association , said.

The IBA has also sought reduction of lock-in period of deposits that attract tax deduction to three years, from five years now.

This will help bring it at par with equity-linked savings schemes that get tax deduction for three-year lock-in period.

"Our wishlist is growth oriented and will help in faster financial inclusion," said M.V. Nair, chairman and managing director, Union Bank of India , and chairman of IBA.

Banks should also be keeping a watch on announcements of government borrowing plan in the federal budget, apart from its demands on infrastructure lending, said Anando Bhowmick, analyst at Fitch Ratings.