Finance minister Yashwant Sinha has made tax deductible such amounts that are provided by banks as `doubtful debts', subject to a maximum of 5 per cent of aggregate `doubtful debts' in any one year. "With the aggregate doubtful assets having crossed Rs 26,000 crore, this could mean savings in excess of Rs 1,300 crore for banks on account of reduced tax outgo," Indian Banks' Association chief executive officer MN Dandekar said.

Sinha has conceded some long-standing demands of the banking industry concerning non-performing assets (NPAs). Bank of Baroda chairman K Kannan said that the most notable feature on this front was allowing tax deduction for banks on provisions they make for their bad loans. State Bank of India chairman GG Vaidya said that finance minister's initiative to clean up banks' balance sheets is in tunewith the blueprint for banking-sector reforms prepared by the Narasimham Committee.

Banks are expected to provide for 100 per cent of the unsecured portion of the doubtful assets, and up to 50 per cent for the secured portion."Though banks had earlier sought a 100 per cent income-tax deduction on provisioning made for doubtful debts, measures announced in the budget indicate the willingness to conform to prudential provisioning and taxation norms practised in most developing countries," said Kannan.

The setting up of five more debt recovery tribunals (DRTs) -- taking their strength to 14 -- and four debt-recovery appellate tribunals, apart from the one already in existence, is a significant move to this end, Kannan said. "This move coupled with amendment of Recovery of Debts to Banks And Financial Institutions Act will significantly expedite the settlement procedures for bank NPAs," he said.

However, many bankers are sceptic about the effectiveness of DRTs, since most of them are understaffed. "TheAhmedabad and Calcutta tribunals have been function- ing without anybody to head the organisations," banking sources point out. These functional blips notwithstanding, arming the banking sector with foreclosure norms and similar ammendments to the DRT Act will ensure faster realisation of sticky loans, Dandekar said.

The third significant measure announced in the budget, as regards bank NPAs, concerns setting up of the `settlement advisory committee' by the public sector banks for speedy recovery through the compromise route, avoiding the lengthy and occasionally ineffective litigation route, Dandekar said.

The IBA had earlier suggested a similar `Samadhan Scheme' - a uniform application of recovery policy, responding to Reserve Bank of India's (RBI) directive to evolve a compromise formula to salvage outstandings from non-performing assets, said the Union Bank of India chairman, AT Paneerselvam.