Corporatisation 'to solve tax problems'

Corporatisation will help the government extend tax sops to public sector banks, which are looking at mergers and acquisitions (M&As). The Finance Minister, P C Chidambaram, yesterday promised that PSU banks would get tax sops when they opt for merger.

"Corporatisation of PSU banks will facilitate resolving the anomalies and lacunae in the Income-Tax Act," said H N Sinor, chief executive, Indian Banks' Association (IBA). IBA has been assigned the task to formulate a proposal for the consolidation in the Indian banking industry.

The IBA has proposed two possibilities towards consolidation among PSU banks either corporatisation of PSU banks or coming out with a scheme under the Nationalisation Act, which permits the same.

The pros and cons of the two options will be examined by a committee before a final proposal is out forth to the government.

Currently while private sector banks can set off losses against profits when they go for M&As, the same cannot pertain to PSU banks as these are not governed under the Companies' Act today.

The Banking Regulations Act does not provide for the same, and hence PSU banks cannot gain any income-tax advantage through mergers. This explains why the proposed merger between Punjab National Bank and IFCI has come across rough weather.

Similarly, the merger between Oriental Bank of Commerce and Global Trust Bank would warrant a special concession in the Income Tax norms as the two acts governing the respective banks are not amicable.

"Corporatisation will help, and PSU banks will need to need to register themselves under the Companies' Act, said Sinor. With this PSU banks will join IDBI, and other government-owned oil companies, which are also governed by the Companies' Act immaterial of government ownership. IBA does not envisage any stumbling blocks under this Act as could well be the case should the government opt for the consolidation of the banking sector under the Nationalisation Act.

IBA entrusted the task to facilitate mergers between public sector banks, is looking into the legal, regulatory and procedural issues.

"We are examining how it is legally possible to undertake amalgamation of public sector banks, what legal amendments are required or whether consolidation in the sector can be achieved without making any amendments," said Sinor.