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Govt deals go to FI-backed banks

Calcutta, Aug. 3: The Reserve Bank of India (RBI) may allow only new-generation private sector banks promoted by financial institutions (FI) to handle government business, including tax collection, pension disbursement and other expenditure transactions. Hence, only UTI Bank, ICICI Bank, IDBI Bank and HDFC Bank would be eligible to handle the government’s business as sub-agents of the RBI, the government’s banker.

This automatically rules out the participation of foreign banks as well as private banks such as Federal Bank, Vysya Bank or IndusInd Bank.

“Since the transactions involved are of a sovereign nature, we would prefer banks that are promoted by FIs and enjoy the confidence of both the Centre and the state governments,” a top-level official of the apex bank said. The RBI is currently in the process of finalising safeguards and eligibility criteria for selection of banks and the nature of government business to be conducted by them.

The apex bank has already authorised HDFC Bank to collect direct taxes with effect from April 1, 2001. The bank has been providing this facility through 79 specified branches in select cities such as Calcutta, Delhi, Mumbai, Chennai, Bangalore, Hyderabad, Ahmedabad and Pune.

The only other private bank currently engaged in government business is UTI Bank, which has, since July 2001, tied up with the Andhra Pradesh government for collection of sales tax and entertainment tax in Hyderabad and Secunderabad.

The main attraction for private banks to handle government transactions is the sheer volumes involved. For 2003-04, the Centre has budgeted gross tax collections of Rs 2,51,527 crore and total expenditure of Rs 4,38,795 crore.

In addition, the state governments’ own tax collections and aggregate spending are estimated at Rs 1,52,595 crore and Rs 3,55,166 crore, respectively. The commission fee offered by the RBI to banks for handling government transactions is now fixed at Rs 1.18 for every Rs 1,000 worth of tax mobilised or payments made.

Currently, a substantial chunk of government business (over Rs 8,90,000 crore) is handled by the State Bank of India and its associates.

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