SBI wants tax parity on bank FDs with mutual funds & equity markets in Budget

Under the current income tax regime, short-term capital gains in equity and MF holdings are taxed at a flat rate of 15%, while long-term capital gains (LTCG) are taxed at a moderate 10%, with exemption allowed till income of LTCG up to Rs 1 lakh during a given financial year.

Also, the setting-off of loss against profits and carrying over the loss up to the next eight years make the opportunity cost of such investments quite lucrative.

"Household net financial savings has declined to 5.3% of GDP in FY23 and is expected to be 5.4% in FY24. If we make the deposit rate attractive in line with MFs, then this could push up household financial savings and CASA. As this amount will be in the hand of depositors, it could unleash additional spending and thereby additional GST revenue to the government," SBI Research said.

An increase in bank deposits will bring not only stability in the core deposit base and financial system but also financial stability in household savings as the banking system is better regulated and has a superior trust compared to other alternatives with high volatility/risk, it said.

"Deposits are taxed on accrual basis and other asset classes only on redemption and there is also a need to remove this treatment," SBI said.

These recommendations come at a time when a lot of bankers are blaming the increasing interest in MFs and even direct equity investing for the slower pace of growth in bank deposits.

The raging bull market on Dalal Street, where Sensex has given a 22% return in the last year, is making investing in stocks and MFs more lucrative than which come with a 6-7% annual return.

In the March quarter, the CASA (current account and savings account) ratio of banks declined YoY by 40-730 basis points (bps).

During the quarter, while credit offtake grew 19.3% YoY, deposit growth was slower at 13.6% YoY. In its wishlist, SBI has also recommended divestment of public sector banks, including a stake sale in .

"As Banks are in good condition, the Government should take a stance on the disinvestment of PSBs. Further, the Government and are selling an almost 61% stake in IDBI Bank. They invited bids from buyers in October 2022. In January 2023, DIPAM received several expressions of interest for the IDBI Bank stake on offer. We expect the Government to clarify this in the Budget," it said.