June 27, 2009

Lately Ben Bernanke, US Federal Reserve chairman was quoted saying that “History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively.” The veracity of this statement cannot be denied and more so in the Indian context. Banks in India have always played a pivotal role in providing a thrust to the industrial development of the country by assisting the development of the priority sector in India.

Thus, in the current challenging times, it becomes imperative to provide the much required fiscal support to the banking industry.One of the long pending demands of the banking industry has been to allow them as deduction the provisions for bad and doubtful debts, which they need to maintain mandatorily as per Reserve Bank of India (RBI) guidelines, instead, of the currently allowed provision of 7.5 per cent of total income and 10 per cent of rural advances 5 per cent of total income for foreign banks.