'The Budget has been pro-banking sector'

Chanda Kochhar

Budget for 2002-03 has taken positive steps in areas such as agriculture, infrastructure, rural development and capital account convertibility. However, I would have been happy to see some direct positive measures aimed at reviving the economy in terms of spurring the corporate sector and capital market.

The Budget has removed some of the tax concessions linked with some of the small savings schemes. In such a scenario, bank deposits would be relatively more attractive for the saver. ICICI has always kept the interests of the saver in mind when designing schemes and would continue to do so in future.

Let me cover some points that the Budget could have covered. Firstly, the TDS on interest on fixed deposits with banks could have been withdrawn as it does impose a high adminstrative cost on the system. Further, a roll-back on the 80-L limit was also expected, but did not materialize.

These two measures would have been beneficial for the customers as well as the banking system. However, if one looks at the Budget from a broader angle, it does appear that the Budget has sought to do away with all kinds of concessions. Therefore, the non-roll back of these measures is probably justified against this ideology.

The Budget has, in general, made the banking sector better off with its proposals. The issue of recapitalizing Indian Bank and providing an incentive on NPA provisioning should be viewed from the point of view of financial sector reforms. The new bill on banking sector reforms would, I hope also address the issue of loan recovery, which is good for the banking sector. Therefore, the basic content is fairly satisfactory from the point of view of the banking sector.

The Budget has been pro-banking sector. This view has also been echoed by analysts since the reforms have indicated, as mentioned by me earlier, that the basic issue of NPAs is being tackled positively through the NPA provison incentive as well as the setting up of an ARC. The sector will definitely benefit from these measures.

The decision to allow foreign banks to have 100 per cent subsidiaries in the country is a welcome step as it would increase the level of competition and hence improve service levels in the industry. We have already witnessed a marked improvement in efificeny in the system with the advent of new private banks in the last decade. Therefore with more competition, the final consumer always benefits.

As far as delivery on the Budget is concerned, this issue has come up quite frequently in recent itmes. But, you should remember that a Budget is based on certain assumptions of growth and if they do not materialize, then the targets go awry.

For example, an industrial slowdown gets reflected in lower excise, customs and corporate tax collections. To my mind, the Budget should be interpreted more as being a statement of account of the government which gives direction to policy.

The Budget is definitely reform-oreinted in the sense of a medium to long-term view of policy framework. However, the mixed response has been mainly due to the absence of positive measures to revive both industry and the capital market in the immediate run.

The details of the new bill on banking sector reforms are still awaited. However, the indications are that the Bill will address the entire issue of recovery from the point of view of banks, which should ultimately help in strengthening creditor rights.

Chanda Kochhar is executive director, ICICI Bank.

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