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Banks, institutions see sops for infrastructure funding

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Crisil Marketwire Mumbai
Banks and financial institutions (FIs) expect Finance Minister P Chidambaram to announce incentives to boost infrastructure funding in the Union budget to be presented on Tuesday. Banks also expect the minister to provide tax exemptions on fixed deposits.
 
The government has been emphasising the need for infrastructure financing, with the economy growing at over 8 per cent. However, banks, faced with the problem of raising long-term capital, are unable to meet the long-term credit demand for infrastructure projects.
 
Banks and FIs are finding it difficult to raise deposits, liquidity is tight and the avenues of improving capital flow through securitisation of assets have also dried up, Conrad D'Souza, head of treasury with Housing Development and Finance Corp (HDFC).
 
"Government imposed restrictions on FIs to raise long-term overseas money for domestic purposes as foreign exchange (forex) reserves were high and it could add to liquidity," D'Souza said.
 
There could be some announcement on whether foreign exchange reserves can be used for infrastructure financing, bankers said.
 
Earlier, it was reported that the Planning Commission Deputy Chairman Montek Singh Ahluwalia was in favour of using forex reserves for infrastructure funding but the Reserve Bank of India was against it.
 
According to K Cherian Varghese, CMD, Union Bank of India, "The government could issue tax-free infrastructure bonds for the metros. It will attract a lot of retail investments."
 
Removal of income-tax exemption on fixed deposits in the 2005-06 budget and competition from high yielding postal saving schemes, public provident fund, mutual funds and booming stock market are luring customers away from banks.
 
"The biggest competition is the mutual funds sector as it has tax exemption. If the tax exemption is allowed, then banks would find easier to mop up more deposits," said P Mukherjee, head of treasury, UTI Bank.

 
 

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First Published: Feb 24 2006 | 12:00 AM IST

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