New tax liability may eat into profits of 32 state co-op banks

Thiruvananthapuram, March 23 | Updated: Mar 24 2006, 05:30am hrs
As many as 32 state co-operative banks are set to shatter their fragile pots of profit in their first encounter with the taxman. The unexpected budgetary axe on the exemption (under Section 80-p of IT Act) has rattled not only loss-makers like those in Central India, but also profit-makers like Gujarat, Maharashtra and Kerala state co-operative banks.

An RBI spokesperson opines that the tax means the heat is now on state co-operative banks to either get out of banking or streamline efficiencies out of their outfits. One may also recall the ongoing tug of war over dual control on co-operative banks and Reserve Banks insistence that co-operative banks should not be allowed to use the bank nomenclature.

Even among the more successful co-operative banks, the profits had been swinging in a modest band of Rs 2 crore to Rs 5 crore. The new tax is expected to eat these surpluses substantially. In a typical example, Kerala State Co-operative Bank, which posted Rs 4.59 crore profit (provisional) in the current financial, will have to cough up about Rs 3.4 crore (estimated) under the new tax liability.

What is most unfair about sniping the tax exemption is that it anticipates an unscientific comparison with high-revenue banks with corporate clientele and low-revenue co-operative banks with weaker sections as customers, KR Aravindakshan, chairman, National Federation of Co-operative Banks (NFCB) told FE.

Our revenue-raising costs are higher. Like commercial banks, we do not go for bill-discounting operations, he points out.