FM may take RRBs out of tax net

Finance Minister P Chidambaram may give income tax exemption to regional rural banks, which are mainly financing farmers and the rural poor.

A decision in this regard is likely to be announced on Monday when Chidambaram meets the chairmen of the 96 regional rural banks.

Regional rural banks, which were deemed to be on a par with cooperatives, were earlier exempt from paying 30 per cent tax on their profits. However, they were brought under the tax net from 2006-07.

"Regional rural banks provide up to Rs 3 lakh to farmers at 7 per cent interest rate and get 2 per cent subvention from the central government. But the administrative and operational cost of such funds to regional rural banks (RRBs) is 9.3 per cent. The tax exemption should be restored," an official of an RRB said.

Out of the 96 RRBs, 29 have a negative networth of 1,786 crore and need urgent recapitalisation from the central government, state government and commercial banks in proportion to their shareholding of 50 per cent, 15 per cent and 35 per cent, respectively. About 39 RRBs had accumulated losses to the tune of Rs 2,746 crore by March 31, 2007.