Bank unions' Budget wishlist: Scrap tax on profits of cooperative banks

Asks for refinancing Rs 2 trn for non-recovery of farm loans

The banking sector unions, under the aegis of the All India Bank Employees' Association (AIBEA), have sought exemption from income tax on profits of cooperative banks in the upcoming Union Budget to be presented on February 1.

 

The cooperative banking entities are not commercial undertakings. Whatever is earned (as surplus) will go to the members only. The taxation of profit defeats the purpose of cooperation. The exemption should be restored, said C H Venkachalam, Secretary General, AIBEA.

 

Earlier profits of cooperative banks were not taxed. It was the Congress-led United Progressive Alliance that brought profits of cooperative banks under the ambit of tax, he added.

 

There should be recapitalisation fund to strengthen the profile of cooperative banks to enable them to enhance spread and business growth. The recapitalisation should be done, wherever needed, by both the Central and state governments as per the recommendations of the Vaidyanathan Committee, AIBEA said in a letter to Union Finance Minister Nirmala Sitharaman.  

 

Venkatachalam said cooperative lenders needed money for capital expenditure, making investments for core banking solutions and technology to be on par with commercial banks.

 

“The government has to set aside money. Otherwise, the cooperative banks will die,” he said.

 

The Vaidyanathan Committee panel in its report had said that the resource support in the way of recapitalisation was ultimately a charge on public funds and therefore, must be recommended with utmost caution. The recapitalisation should be limited to institutions that conform to the standards of eligibility set by it.

 

AIBEA said the amendment made to the Banking Regulation Act in 2020 enabling the cooperative banks to raise capital from the public should be repealed.

 

“Based on amendments, cooperative banks can go for initial public offering. That means they will not be cooperatives and those who invest money can take over the bank. The capital should remain with members of cooperative banks only. The provision will give room for privatisation and the sanctity of cooperative banking will go,” said an AIBEA officer bearer.

 

AIBEA also suggested a refinancing window of Rs 2 trillion for non-recovery of farm loans from small and marginal farmers, owing to crop failures. The Union and state governments should refund the amount of farm loans waived by the banks, cooperative banks, and regional rural banks, Venkatachalam said. 

Key asks 

 

> Refinancing Rs 2 trn for non-recovery of farm loans  

  > Repeal provision in law to raise capital from public

  > Set up recapitalisation fund to infuse capital