Banking Challenge?!

State-run banks are not behind in profitability either (see ‘How PSB’s managed to beat the slowdown’ on pg 78). If you compare the Q3 earning reports of major banks, the obvious gets reiterated. PSBs have increased profitability (in net profit, PSBs showed an increase of 48.4% in net profits as against an increase of 25.4% for private banks during Q3’08), improved asset quality and lowered their bad debts (or non-performing assets – NPAs – if you please). The largest state-run entity SBI, for instance, despite the challenging market conditions, reported a net profit of Rs.37.14 billion, an increase of 52% against Rs.24.42 billion in the third quarter of the last fiscal, while the largest private lender ICICI Bank reported a net profit of Rs.12.72 billion, a modest growth of 3.41% compared to Rs.12.30 billion in the third quarter of 2008. And the better returns are despite the social service placards that hang around every PSB’s neck like the proverbial noose! As per a Motilal Oswal Report the Q3 results, “demonstrate the pricing power enjoyed by banks, especially state-owned banks, which posted higher yield on loans and strong fee income in the quarter.”

So Alan Greenspan, once the high priest of capitalism and recently converted supporter of nationalisation (of BoA and Citibank) can gleefully point toward the valuation charts of SBI, ICICI, HDFC Bank or indeed even Citibank to convince his detractors of his new stance. The Indian stock market has put a higher valuation to state-run SBI as opposed to others. While ICICI’s market cap rests at Rs.37,906 crore and HDFC has gravitated to Rs.36,756 crore, SBI sits pretty at almost double the valuation at Rs.65,885 crore. If the proof of the pudding is in the eating then SBI’s eminently edible now! Small wonder that even corporates are rethinking their options. During the last nine months, Infosys Technologies drastically reduced its deposits with private & foreign banks, parking money with state-run banks instead. When Ratan Tata wanted to finance his expensive Corus deal, SBI cleared $1billion in 5 minutes flat! Did someone say PSBs are slow on their customer response?

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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LET PORTIA CHOP OFF YOUR TAX BURDEN

Spring, the much awaited flavour of the year is just around the corner and, ironically, the most feared ordeal too – filing of tax returns! In fact, with the tax-planning approaching its very last spell, individuals are now rushing around to nest eggs, all to play down on their tax liabilities. Result: Most of them (particularly, salaried ones) end up paying more taxes than they are actually required to. Though, inappropriate tax-planning (due to lack of time) is a rationale, largely, this can be attributed to lack of awareness about right saving instruments and, of course, deductions available under the Income Tax Act. So, let’s quickly run-through various options available under the Act that can help one save a lot…

Have you utilised entire 80C & 80CCC deductions?

Under these sections, a total deduction of up to Rs.1,00,000 is allowed from taxable income in respect of investments made in some specified schemes which include life insurance premiums, contributions to Employees’ Provident Fund, Public Provident Fund (PPF), National Savings Certificates, (NSC), Unit Linked Insurance Plan (ULIP), repayment of housing loan (Principal), equity linked savings scheme (ELSS), fees paid for full-time education of any two children, infrastructure bonds issued by certain institutions, interest accrued in respect of NSC VIII issue, pension scheme of LIC or any other insurance company specified under the scheme, and fixed deposit with banks having a lock-in period of five years. In fact, there are no individual caps (except for PPF where one can invest maximum of Rs.70,000 in a year) on investment and the individual is free to invest Rs.1,00,000 in any one or more of the specified instruments.

Think beyond! It’s just not 80C…

Well it’s not just 80C. In fact, deduction of up to Rs.40,000 can be claimed under section 80D of the Act in respect of premium paid towards health insurance policy taken for spouse, dependent parents and other dependents. In fact, an individual falling in the 30% tax bracket can save tax of Rs.12,000 by paying Rs.40,000 as annual premium for a mediclaim policy.

24(1)(vi) and 80E are there too!

While under section 24(1)(vi), interest on borrowed capital for the purpose of house purchase or construction is deductible from taxable income up to Rs.1,50,000 with some conditions to be satisfied, interest on education loan (for self education) can be deducted in full under section 80E.

Hey! Didn’t you pay your house rent?

Salaried individuals can also claim rent paid by them for residential accommodation, if HRA doesn’t form part of their salary. This deduction is available under Section 80GG and is least of the following: (a) 25% of the total income or, (b) Rs.2,000 per month over the actual rent paid or, (c) excess of rent paid over 10% of total income.

So, these deductions, if utilised fully, can save an individual from a situation where he ends up the financial year just scratching his head and paying up more than he was actually obligated to.

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

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