Corporate Tax Cut Will Not Benefit SBI Immediately, Says CFO Prashant Kumar
SBI is carrying almost Rs 8,000 crore of deferred tax assets on its balance sheet.
India’s $20 billion tax-cut boost announced last Friday will not benefit India’s largest lender since higher deferred tax assets on its books will delay tax benefits, according to State Bank of India’s Chief Financial Officer Prashant Kumar.
“We are carrying almost Rs 8,000 crore of DTAs on our books. Unless we are able to reverse that, having that tax benefit would not be immediately available,” Kumar said, adding that the lender would be able to reverse the entire DTA on its balance sheet during the ongoing financial year. “Definitely in the next financial year, we would be getting our full benefit of reduction on the tech side.”
DTAs arise when a company pays taxes in advance to the government. Due to the difference in the timing of provisioning against bad loans and tax payments, many banks have DTAs on their balance sheets.
“Because of the reduction on the income tax side, we are expecting better credit growth for us. Better earnings for corporates, would also help us in reducing our NPA level,” Kumar said.
A research note by Kotak Institutional Equities said that the revised lower tax rate is expected have negligible impact on banks with high DTA. “Banks with a larger proportion of bad loans in recent years have been building up significant DTA. In our view, this would have to be marked down by 30 percent,” the note read, adding that the impact would be the highest for ICICI Bank Ltd., SBI, Bank of Baroda and Axis Bank Ltd.
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