X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Budget impact - Banking - Views on News from Equitymaster
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Budget impact - Banking
Jul 10, 2014

Financial sector lies at the heart of the economy's growth engine. And banks are central to this growth. No wonder, the bank sector has garnered a fair share of spotlight in the NDA's maiden Union Budget.

Recapitalizing banks - but not with taxpayer money

Citing that financial stability is the foundation of a rapid economic recovery, greater emphasis has been laid out on strengthening the banking sector in the budget. The PSU banks would require Rs 2.4 trillion fund infusion by 2018. This would be necessary to be BASEL III complaint as well. Therefore, additional resources are expected to be raised in order to meet this huge capital requirement. The Budget has clarified that the capital for these banks will be raised through the sale of shares in banks to retail investors. This in turn will help government retain its majority shareholding in banks, without parting with precious tax payer funds.

In what could be termed as stand out proposition in the budget, the FM has agreed to provide additional autonomy to PSU banks. Now that's the need of the hour, we reckon. The government will also consider consolidation of PSU banks.

Furthermore, the RBI is also expected to undertake the responsibility of creating a framework for licensing small banks and other differentiated banks. Differentiated banks are local area banks that serve niche interests and are expected to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant work force. Private sector as we know is all set to see entry of new banks. The FM in its budget has ensured continuous authorization of universal banks in the private sector in the current financial year.

The budget has also laid out plans to help banks to fulfill the priority sector lending (PSL) targets. And so also to create infrastructure in agriculture and rural sectors across the country! In this regard, it has proposed to raise the corpus of Rural Infrastructure Development Fund (RIDF) by an additional Rs 50 bn. The target given in the Interim Budget stood at Rs 250 bn in the current financial year.

Focus on Insurance...

Further, taking into account the wide network of bank branches and the low penetration of insurance in the country, the budget spelt out that banks would act as business correspondents to sell/cross-sell insurance products. So while the insurance companies may give thumbs up to these decisions, banks with insurance subsidiaries would also largely benefit.

Infrastructure- a direct beneficiary

It's no news that the infrastructure development has remained the core of the NDA government's agenda since day one. Hence, undoubtedly, the budget has laid out plans of encouraging banks for long term infrastructure lending. To that effect, the banks would be permitted to raise long term funds to lend to infrastructure with minimum regulations (such as exemption from CRR, SLR and PSL). Here, not only the infra sector would be a direct beneficiary, but this would step-up bank credit too.

Subsidized funds for farm sector

Likewise, agriculture sector too receives major boost from the banks. To maintain a continuous flow of strong credit support, it is budgeted to provide Rs 8 trillion farm credit in FY15. In addition, the interest subvention scheme for short term crop loans will continue. Under this scheme, the banks extend loans to farmers at a concessional rate of 7%. Moreover, an additional 3% interest subsidy on farm loans has been proposed in the budget. That this would provide relief to the farmers and boost the agricultural sector going forward is imminent.

Relief to the lenders...

The rising non-performing loans of public sector banks has remained a matter of concern for one and all. In this regard, the government has proposed to set up six debt recovery tribunals at Chandigarh, Bengaluru, Ernakulum, Dehradun, Siliguri and Hyderabad. The government has proposed to work out effective means for revival of other stressed assets. In a stressed environment, faster recovery of bad loans would provide significant relief to the banks.

Some of the proposals listed above would have a positive effect on the banking sector over the longer term. For the PSU banks in particular, additional capital headroom and greater autonomy could mean a valuation re-rating over a period of time.

Equitymaster requests your view! Post a comment on "Budget impact - Banking". Click here!

1 Responses to "Budget impact - Banking"

ravi

Mar 7, 2015

super

Like (2)
  
Equitymaster requests your view! Post a comment on "Budget impact - Banking". Click here!

More Views on News

SBI: Pushed in Red on Increased Slippages and Higher Credit Costs (Quarterly Results Update - Detailed)

Feb 21, 2018

SBI posts loss on elevated bad loans and higher provisioning requirements.

IDFC Bank: One-Off Trading Loss, Expansion Pull Down Profits (Quarterly Results Update - Detailed)

Feb 8, 2018

IDFC Bank's profits hit by trading loss and higher investments to build network.

Axis Bank: Lower Slippages Save Bottomline Performance (Quarterly Results Update - Detailed)

Feb 6, 2018

Lower provisioning leads to the net profits growing by 25% during the quarter. However, asset quality remains a concern and would be the key thing to watch out for in the coming quarters results.

Should You Take SBI Chief's Advice and Load up on SBI Shares? (The 5 Minute Wrapup)

Jul 6, 2017

Does the stock score on the value versus price equation?

Why We Skipped This 70% Gainer (The 5 Minute Wrapup)

May 18, 2017

Underreporting of bad loans by some private sector banks casts a cloud over the sector's clean image so far.

More Views on News

Most Popular

India in Crisis

Here we highlight the crisis scenarios that India could face. The worry is that there aren't really any easy solutions in sig...

The Foundation for Sensex 100,000 is Laid(The 5 Minute Wrapup)

Feb 17, 2018

Top three reasons for Tanushree's presentation at Equitymaster Conference to be centered around a possible 30% correction.

India's Rs 1,66,276 Crore Problem(Vivek Kaul's Diary)

Feb 15, 2018

That's the loss, the government owned public sector enterprises are expected to make this year.

The Big Gamble(The Honest Truth)

Feb 15, 2018

Once you accept the fact that elections are round the corner and that this budget is geared to reach a 40% target, everything makes sense.

How I Beat the Index by 2x... And Why I Believe This Could Happen Again(Smart Contrarian)

Feb 12, 2018

Will Microcap Millionaires be able to replicate its past performance of beating the index by 2x?

More

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE BANKEX


Feb 23, 2018 03:35 PM

MARKET STATS