Institutions pitch for 2rate cut

NEW DELHI, JANUARY 10: The financial institutions and investment bankers have made a case for lowering of interest rates by at least 2 per...

NEW DELHI, JANUARY 10: The financial institutions and investment bankers have made a case for lowering of interest rates by at least 2 per cent to boost investment and stepping up public sector disinvestment which had potential to realise Rs 50,000 crore in the next two years.

During a three-hour long pre-budget meeting with finance minister Yashwant Sinha on Monday, the FI chiefs said the reduction in interest rates would also help the government to bring down its fiscal deficit by cutting its interest burden. The meeting, among others, was attended by UTI chairman PS Subramanyam, SBI chief GC Vaidya, ICICI managing director KV Kamath, IDBI chairman GP Gupta, IFCI chairman PV Narasimhan and HDFC chief Deepak Parikh.

The FI chiefs also suggested that the institutions be allowed to float tax-free bonds to raise long-term funds for infrastructure sector. They demanded modifications in the investment pattern prescribed for Provident Funds so as to facilitate higher level of investment in securities of financial institutions.

The suggestions include interest tax exemptions to both industrial and housing loans, TDS for FIs on par with banks and more liberal tax deduction for full provision of NPAs. It was pointed out that benefits under 10.23g of Income-tax be given on gross basis and benefits for investment in infrastructure projects available under section 88 be raised suitably.

The FI chiefs suggested strengthening of institutional apparatus to tackle NPAs and weak banks problem by way of a revamped deposit insurance scheme. Also there should be distinction between short-term and long-term funds in the context of insurance premia for tax payers.

Suggestions were also made for bringing down the interest rate on provident fund and kisan cards which can induce cut in overall interest rates. Mutual funds and stock exchange representatives cautioned the government against reintroduction of dividend on taxes for mutual funds saying this could affect the buoyancy in the stock market. They demanded simplification of the legal system for recovery of non-performing assets with special reference to Sick Industries Companies Act SICA.

Finance minister, on his part, expressed concern over the interest rate competition within the financial sector and desired a level playing field in the sector involving the mutual funds and the banks.

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The minister emphasised the need for achieving 8 per cent GDP growth to tackle the problem of poverty. He said that the financial institutions and banks should cope with the challenge of competition.

With regard to capital markets, he underlined the need for maintaining investor confidence at high level. He also referred to the problem of NPAs in the financial system and pointed out that LIC and GIC must prepare for competition in the insurance sector.Atilde;iquest;