Loan waiver could be blessing in disguise for banks: experts

Contrary to the widespread consternation regarding the extent of the massive hit which banks, particularly in the public sector segment, will have to take, on account of Chidambaram’s populist waiver of Rs 60,000-crore of farm loans, tax experts feel banks may actually benefit out of all this. According to tax experts, banks will collectively get tax breaks to the tune of Rs 20,400 crore, when they waive Rs 60,000 crore of overdue loans. They will also get a chance to clean up their balance sheets by way of writing off bad loans. The general perception is that the government would compensate the banks for the losses which, prima facie, would be a maximum of Rs 39,600 crore after taking into account the benefits of tax exemption. Tax experts believe that banks would need to provide for a much lesser amount as the major part of it appears to have been provided for. Banks would automatically get another Rs 30,000 as repayments of loans on account of OTS (farmers can avail of the scheme by paying 75% of the loan and get a rebate of 25%). This would be cash inflow and allow banks to give fresh loans. “Technically, not all overdues are non performing assets. Overdues become NPA if repayment is not made for three months. These are largely sub-standard assets and banks need to follow a less stringent provisioning norms for such assets. We have just begun our calculation and a clearer picture would emerge in a couple of days,” a top banker said. Therefore, banks would need to make a fresh provisions against the amount waived and take a hit on the profitability.