The FDI limit in private sector banks has been raised to 74% from the existing 49%.

The SBI will have to lend at lower rates to the agricultural sector as well as SSIs. SBI will now offer loans in the range 2% above its Prime Lending Rate (PLR) or 2% below its PLR.

Tax exemption on interest on housing loans maintained at Rs 150,000 per year.

The government has agreed to buy back older government borrowing with high interest rates from banks.

Reduction in the interest rates on all small savings schemes by 1%.

Increase in FDI limit will increase investments in the banking sector. Banks with an international parentage are likely to see increased consolidation by their parents. The budget measures are also likely to lead to increased consolidation among private sector banks.

The proposal by the government to buy back its old high cost loans will impact the banks in two ways. Firstly, the banks will be able to book gains on their high yield G-Sec portfolios. However, these gains will have to be for provisioning against NPAs. Thus, the government's intention is to improve the asset quality of banks. The flipside, however, is the fact that though these banks will be able to book one-time gains, the incremental investments in G-Secs will be at lower yields. Thus, interest income from investments of these banks is likely to take a hit going forward.

The reduction in interest rates of all small savings schemes is likely to increase the attractiveness of bank deposits as the difference between small savings schemes and fixed deposits is slowly narrowing.

Incentives of housing loans remaining unchanged will ensure that housing loans will continue to remain in favour of the middle class. A healthy growth that has been seen in the past is likely to continue.

The cap on interest rates for the purposes of lending to the agricultural and SSI sectors will go a long way in ensuring that the benefits of lower interest rates are passed on all sections of borrowers. The flip side however is that bank exposure to relatively high risk sectors will increase.

Abolition of tax deducted at source on bank fixed deposits.

Increase in the foreign investment limit in Private sector banks to 74% and state run banks to 49%.

Exclusion of the GDR holding in State Bank of India (SBI) from the 20% cap on foreign holding.

The Indian Banking Association (IBA) has suggested the relaxation for listed banks and financial institutions from adhering to accounting standards not synchronous with banking operations. (Globally there is separate set of accounting standards for banks under IAS - 42).

Government shareholding in PSU banks to be reduced to 33%.

Financial Reconstruction Authority to be given special powers to address issues of weak banks.

Four more debt recovery tribunals and three appellate debt recovery tribunals to be set up.

Recapitalisation of weak banks to continue.

Cut in small savings rates 1-1.5%

Limit for TDS on deposits reduced to Rs 2,500 from the current Rs 10,000.

Abolishment of banking service recruitment board

Setting up of Asset Reconstruction Company by June 2002.

Banks are now allowed to deduct 7.5% of their total income against provisions made by them for bad and doubtful debts.

Banks are given option to deduct up to 10% of their non-performing assets (NPAs) falling in the category of loss or doubtful assets from total income.

Bill on the banking sector reforms is to be introduced in Parliament.

Foreign banks permitted to operate in India with fully owned branches after the specific permission of RBI.