The Indian banking sector received its due credit for remaining relatively unaffected during times of global financial turmoil in the Union Budget 2009-10. By passing on the mantle to banks for facilitating infrastructure funding, financing PPP projects, SME funding, loans for education, export oriented industries as well as interest waiver to farmers, the sector has been offered a lot to look forward to for its growth in this fiscal. More importantly allocating a sizeable Rs 1,000 bn to IIFCL and allowing it to refinance 60% of bank loans to critical sectors is expected to go a long way in enhancing the banking sector's contribution and participation in infrastructural and economic growth.
Budget Measures
India Infrastructure Financing Company Limited (IIFCL) to refinance 60% of bank loans to public private partnership (PPP) projects. Together with banks the institution will support total investment of Rs 1,000 bn.
Target for agricultural credit in FY10 enhanced by 13.2% to Rs 3,250 bn. Additional interest subvention of 1% offered to banks for incentivising farmers who repay short term loans as per schedule.
No prior approvals required for opening off-site ATMs. Rs 1 bn provided for setting up at least one point of sales for banking services in each unbanked area.
Full subsidy during moratorium period of education loans borrowed by economically weaker sections.
Banks and Insurance companies to remain under government ownership and receive support and capital infusion to grow as well as remain competitive.
Increased allocation towards Accelerated Power Development and Reform Programme (APDRP) by 160% to enable higher funding to power projects.
Budget Impact
Enhancement of tax slabs on personal income, although marginal, will encourage higher savings and higher consumption which in turn will enable banks to grow their deposit and credit base respectively.
With IIFCL refinancing 60% of bank loans to public private partnership (PPP) projects, banks will get a bigger share of infrastructure funding pie as compared to earlier when they were handicapped with small balance sheet sizes.
Higher agricultural target and additional interest subvention will allow banks to lend more to the sector.
Extended relief period under the Debt Waiver and Debt Relief scheme will contain the possibility of higher agricultural NPAs due to the delayed rainfall.
No prior approvals required for setting up off site ATMs will enable banks speed up their franchise expansion.
Company Impact
Public sector banks like OBC and IDBI that are falling short of capital for growth will receive government funding.
Large banks like SBI will benefit from the fund allocation for financial inclusion.
Increased allocation to APDRP scheme will facilitate credit growth for Power Finance Corporation (PFC).
The Indian banking sector received its due credit for remaining relatively unaffected during times of global financial turmoil in the Union Budget 2009-10. By passing on the mantle to banks for facilitating infrastructure funding, financing PPP projects, SME funding, loans for education, export oriented industries as well as interest waiver to farmers, the sector has been offered a lot to look forward to for its growth in this fiscal. More importantly allocating a sizeable Rs 1,000 bn to IIFCL and allowing it to refinance 60% of bank loans to critical sectors is expected to go a long way in enhancing the banking sector's contribution and participation in infrastructural and economic growth.