Representatives of the financial sector today sought the government's help to revive the capital markets and called for the review of the 5 per cent ceiling on bank exposure to equities. In their pre-Budget meeting with finance minister Yashwant Sinha, the financial sector also asked for margin trading to be made less restrictive and allowing banks to fund the activity.
They also suggested that the next stage of capital reforms should focus on making future trading attractive by treating it as usual business activity and excluding financial institutions (FIs) from the purview of withholding tax on external commercial borrowings. They also sought a review of tax concessions for retail investors and suggested that the government stake in PSUs may also be divested through the initial public offer route.
The FIs have also asked for speeding up the process of floating interest rate regime as it would protect them against inflation. They also sought a review of the 5 per cent ceiling on provisioning of non-performing assets.
Also Read
The FIs also recommended that the asset reconstruction companies to take over the NPAs of banks and FIs should be set up with participation from the private sector and stressed on a focussed approach to solve the problem of bad debts in major sectors like steel and petrochemicals.
The banks have said the corporate sector should be encouraged to acquire their equity to facilitate recapitalisation. To encourage investment in infrastructure, the representatives asked for deleting Section 14 (a) of the Income Tax Act which was introduced in the last Budget to withdraw the benefit of tax deduction on interest income from investments in the infrastructure sector.
The representatives also sought a policy structure for the construction sector and clarifications on the tax treatment of leasing. The representatives also said that the ambit of infrastructure sector should be enlarged to include low-income housing and suggested measures to promote financing of infrastructure through the equity route.
On pension reforms, the institutions said that tax concessions should be given for annuity instead of commutation in pension and also asked for allowing provident and pension funds to invest in equities.
The insurance sector sought a tax exemption for contribution to the national catastrophe reserve and levy of 10 per cent surcharge on reinsurance premium. Also, the provision of tax deduction at source (TDS) for private insurers should be reviewed, they said.
Bankers said TDS threshold should be raised to Rs 25,000 and a small industries development fund should be created to strengthen the SSI infrastructure.