‘Government, RBI will keep PSBs healthy, fiscal discipline vital’ (Roundup)

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New Delhi, March 2 (IANS) The government said on Wednesday that, along with the RBI, it will provide all resources to keep state-run banks in good health, reiterating, at the same time, the need for fiscal discipline to achieve economic targets.

In a post-Budget 2016-17 meeting here with India Inc., Finance Minister Arun Jaitley also said he has taken the first “significant” step to resolve retrospective tax cases by installing a statutory mechanism to handle such disputes.

“The RBI last evening (Tuesday) took a very positive move which helps further in recapitalisation of banks,” he told representatives of industry associations Federation of Indian Chambers of Commerce and Industry, Confederation of Indian Industry and Associated Chambers of Commerce at a post-Budget 2016-17 meeting here.

Lauding the Reserve Bank of India’s (RBI) move to help banks besieged by stressed loans by easing rules, Jaitley said “whatever resources are required to keep PSU banks in good health, we are going to give”.

“We are also, after improving their health, going to look at possible consolidation and further reforms and while doing so, we have to maintain fiscal discipline,” he added.

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The RBI said on Tuesday that banks can now apply gains from revaluation of property to core capital requirements under certain conditions.

It also allowed conversions of foreign currency in financial statements to be counted as common equity capital, as well as eased rules on counting deferred tax assets.

“It was extremely important for us under these circumstances to maintain the discipline,” Jaitley said.

“And I am quite sure, with all the steps we have taken and hopefully in the next financial year, which is politically not obstructive as the last one, we will be able to push through many more reforms,” he added.

The government has targeted reducing the fiscal deficit to 3.9 percent of the gross domestic product (GDP) in the current financial year, compared with four percent last year, and reduce it further to 3.5 percent in 2016-17.

Continuing government efforts to deal with high levels of non-performing assets or bad debts of state-run banks, Jaitley, while presenting the 2016-17 general budget in the Lok Sabha on Monday, allocated Rs.25,000 crore towards their recapitalisation in the next fiscal.

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India’s central bank said it was amending the treatment of certain balance sheet items in determining banks’ regulatory capital, for further aligning these to the international Basel III capital standards.

As per estimates, public sector banks need up to Rs.240,000 crore by 2018 to meet the Basel III capital adequacy norms.

On the retrospective tax issue, Jaitley said: “I had hoped it would be resolved by courts or tribunals, where issues are pending. But now, I have a statutory mechanism of resolving it and therefore, again we have taken the first significant step forward in order to be in a position to resolve this.”

“I think what is most important is our desire to resolve all pending disputes.”

In his budget speech, the finance minister made a one-time offer to corporates facing tax demands on account of retrospective tax, of waiver of interest and penalty if they pay the principal tax amount.

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British oil major Cairn Energy is facing a tax demand of Rs.10,247 crore on a nine-year-old business reorganisation it effected in Cairn India, while another British firm, telecom giant Vodafone, is facing tax liability over its $11 billion stake purchase in 2007 in the mobile phone business of Hutchison Whampoa.

Addressing the strong reaction provoked by the Budget 2016-17 proposal on tax treatment of provident fund contributions, Jaitley said he would announce the final decision on the matter when he replies to the debate on the Budget in parliament.

“Now there has been some reactions. When the debate comes up in parliament, I will give the government’s response as to what decision we finally take in this matter,” he said.

During the budget speech, Jaitley said that 60 percent of withdrawals from the provident fund accounts will be taxed on contributions to be made after April 1.

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