As the government eliminates tax benefits for debt mutual funds, banks will get $36 billion in deposits.

India’s move to tax fixed-income mutual fund returns is expected to support attempts by its lenders to entice deposits for funding a rebound in credit growth and increase profitability. According to Sunil Mehta, the head of the Indian Banks’ Association, a lobbying group for lenders, the country’s decision to eliminate tax incentives for some debt mutual funds has opened the door for banks to receive deposits from asset managers of up to $36 billion. The action provides relief for the financiers since the growing gap between credit demand and deposits has raised funding costs and raised dangers of asset-liability mismatches.
According to figures from the Reserve Bank of India, increased loan demand from businesses and households has boosted annual credit growth to 15.7% as of March, up from a five-year average of 10.3%. Unfortunately, the deposit collection has lagged behind and is now just around 10%, which is forcing bankers to search for new ways to attract money.
While investors put money in more alluring asset classes like debt mutual funds, which provided greater rates due to the advantageous tax environment, deposit receipts by Indian banks have lagged. According to the government, inflation was 6.44% in February, which keeps real returns on bank deposits, which are typically 7% annual interest rates for two years, at a low level.

This News is Written by Miss. Ankita , Associate , All India Legal Forum .


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