In the view of the growing pressure on the banking industry to sustain the high rate of growth the economy is experiencing while making credit available to certain core and priority sectors including agriculture, mega announcements are expected in the forthcoming Budget. The deceleration of the agriculture has become a cause for concern and Budget 2008-09 is all set to spell new directives for banks, in order to provide a fillip to this sector.

First, a big-ticket debt relief package is on the anvil. The package will facilitate public sector banks to waive off the non-performing assets in the farm sector. Under the package, small farmers may have to pay back public sector banks only 10% of the loan amount or none.

Mid-sized and big farmers would be waived off 25% of the loan amount.

The provisioning of NPAs, which is currently taxed at 30%, may also be brought out of the tax net.

Banks are also hoping that the government continues to provide the 2.5% interest subvention for farmers.

Second, credit target to the agriculture sector is set to be increased by finance minister P Chidambaram from Rs 2,25,000 crore to Rs 2,50,000 crore. The minister is likely to direct banks to add at least 60 new farmers under its net.

In addition, PSU bank CEOs are expecting the government will provide tax exemptions on interests or dividend earned on infrastructure bonds issued by them. Earlier, under Section 10(23G) of the Income Tax Act, interests earned on infrastructure bonds issued by the commercial banks were exempted. The Indian Banks? Association has also pointed out that TDS (tax deducted at source) must be simplified. ?The banks have to deal with a large number of TDS certificates and this makes things cumbersome. The need of the hour is to have simple processes in place,? HN Sinor, chief executive, IBA, said.

However, the benefit under section 10(23G) was withdrawn in 2006-07.

The regional rural banks which have been identified as an important channel to carry out the financial inclusion programme have said that they be exempted from paying income tax.