Mumbai: State Bank of India (SBI) Chairman on Friday demanded a fair taxation system for bank deposits, saying that equities do not need any special tax treatment considering their maturity and widespread acceptance among investors.
“Equities have come of age in India. They are well understood, widely owned, and no longer need tax favours,” SBI Chairman said at a financial sector event, while emphasizing that bank deposits should get a fair deal in the taxation system, considering their importance in maintaining financial stability.
The SBI Chairman emphasized that the current taxation system favors savings in equity markets at the cost of traditional savings options like fixed deposits, which are still the backbone of bank funding.
Deposit Growth Under Pressure
The comments come at a time when banks are under pressure regarding deposit growth, even as credit demand is strong. The higher returns offered by equity markets and mutual funds have resulted in many investors withdrawing funds from fixed deposits, thus creating a gap between loan growth and deposit growth in the banking sector.
Industry officials have pointed out that fully taxable income on deposits, as opposed to the concessional capital gains tax on equities, has resulted in skewed behavior.
Call for Policy Rebalance
The SBI chairman emphasized that a rebalance of tax policies could assist in encouraging the flow of household savings back into the banking system.
“Bank deposits are safe, regulated, and vital for funding economic growth. Tax policy needs to take this into account,” he said.
Although he did not make any suggestions, he emphasized that a rationalization of taxes across asset classes would assist in capital allocation without deterring market entry.
Market Maturity Argument
The Indian equity market has witnessed a significant rise in retail participation over the past few years, with demat accounts touching record numbers and mutual fund flows remaining strong despite global uncertainties. According to the SBI chief, this change in market behavior highlights the need to re-evaluate whether equity investment is still in need of policy support.
This is expected to further fuel the debate in the run-up to the Union Budget, as policymakers consider steps to encourage savings in the household sector, improve bank balance sheets, and support economic growth.
