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India Equity Research Reports, IPO and Stock News
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Banking
The budget over the last few years has been a mixed bag for the banking sector. The loan waiver scheme of
~`65,000cr was one of the major populist measures, and while it helped banks clean up agri loan books that would
likely have turned NPAs otherwise, banks did eventually have to bear some of the burden of NPAs, where the waivers
were not 100% 100%. However, PSU banks have had their share of positives too, with the government approving capital
infusion of `16,500cr in public sector banks, giving them the additional headroom to raise further capital. Another
favourable development has been the introduction of a new category, termed as infrastructure finance company (IFC),
under NBFC. NBFCs tagged as IFC are authorised to raise capital through issue of tax-free infrastructure bonds. These
bonds have a minimum lock-in period of five years, thus ensuring the much-needed long-term funds for the sector.
Also, the risk-weightage on advances by banks stands reduced to 20% from 100% when lending to an IFC. Last year’s
budget had also indicated additional distribution of banking licenses to improve financial inclusion. The RBI is currently
in the process of chalking out guidelines for eligibility for awarding these licenses and is preparing the future road map
for the presence of foreign banks in India.
One of the keenly watched outcomes of the budget this time around would be measures to address the mismatch in
credit-deposit growth prevailing in the economy. The gap between savings and investments is being plugged by the
high current account deficit at present. The banking sector for a long time has had a budget wish list of reducing the
lock-in period for tax-saving FDs to three years from five years, similar to an ELSS. With higher deposit mobilisation
being the need of the hour, this might become a reality in the coming budget session. Another positive that could
emerge out of the budget is the allowance of provisions for NPAs as an expense for calculating tax liability and not just
full write-offs. The increase in FDI in insurance to 49% has also been on the cards for a while and could be addressed
in this budget.
Apart from the above specific measures, the budget will also be keenly watched for the outlook on the currently high
fiscal deficit. Unlike last year, when the government received ~`1,00,000cr from auctions of 3G and BWA spectrum,
there are no such benefits expected in the short term. Any further increase in fiscal deficit would further harden interest
rates, eventually hitting the credit demand/margins of the banking sector.
Budget Expectations
Head Current Status Expected Change Potential Impact
T i fi d d i Tax-saving fixed deposits 5 l k i i d 3 l k i i d lik Will l k i i FD
(FDs)
5-year lock-in period
`1lakh investment limit
3-year lock-in period (like ELSS
mutual funds)
`2lakh investment limit
put lock-in on tax-saving FDs, at par
with ELSS
Will help increase deposit mobilisation by
the banking sector
Priority sector Interest subvention, lending targets,
farm debt waiver
Increasing benefits Regular budget feature for inclusive growth.
Negative for banks.
Tax break on provisions Provision for bad and doubtful
debts made by banks are allowed
Decreasing tax liability Increase in deduction/full deduction allowed
for calculating tax liability from the
as a deduction to the extent of 7.5%
of gross total income and 10% of
aggregate average rural advances
made by them
provisions covering bad and doubtful debts
Interest rate subsidy No such policy on lending to SEBs Interest rate subsidy on lending
to SEBs
Allay asset quality concerns in the power
financing segment
Help meet financing needs of SEBs
Top Picks
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Banking
The budget over the last few years has been a mixed bag for the banking sector. The loan waiver scheme of
~`65,000cr was one of the major populist measures, and while it helped banks clean up agri loan books that would
likely have turned NPAs otherwise, banks did eventually have to bear some of the burden of NPAs, where the waivers
were not 100% 100%. However, PSU banks have had their share of positives too, with the government approving capital
infusion of `16,500cr in public sector banks, giving them the additional headroom to raise further capital. Another
favourable development has been the introduction of a new category, termed as infrastructure finance company (IFC),
under NBFC. NBFCs tagged as IFC are authorised to raise capital through issue of tax-free infrastructure bonds. These
bonds have a minimum lock-in period of five years, thus ensuring the much-needed long-term funds for the sector.
Also, the risk-weightage on advances by banks stands reduced to 20% from 100% when lending to an IFC. Last year’s
budget had also indicated additional distribution of banking licenses to improve financial inclusion. The RBI is currently
in the process of chalking out guidelines for eligibility for awarding these licenses and is preparing the future road map
for the presence of foreign banks in India.
One of the keenly watched outcomes of the budget this time around would be measures to address the mismatch in
credit-deposit growth prevailing in the economy. The gap between savings and investments is being plugged by the
high current account deficit at present. The banking sector for a long time has had a budget wish list of reducing the
lock-in period for tax-saving FDs to three years from five years, similar to an ELSS. With higher deposit mobilisation
being the need of the hour, this might become a reality in the coming budget session. Another positive that could
emerge out of the budget is the allowance of provisions for NPAs as an expense for calculating tax liability and not just
full write-offs. The increase in FDI in insurance to 49% has also been on the cards for a while and could be addressed
in this budget.
Apart from the above specific measures, the budget will also be keenly watched for the outlook on the currently high
fiscal deficit. Unlike last year, when the government received ~`1,00,000cr from auctions of 3G and BWA spectrum,
there are no such benefits expected in the short term. Any further increase in fiscal deficit would further harden interest
rates, eventually hitting the credit demand/margins of the banking sector.
Budget Expectations
Head Current Status Expected Change Potential Impact
T i fi d d i Tax-saving fixed deposits 5 l k i i d 3 l k i i d lik Will l k i i FD
(FDs)
5-year lock-in period
`1lakh investment limit
3-year lock-in period (like ELSS
mutual funds)
`2lakh investment limit
put lock-in on tax-saving FDs, at par
with ELSS
Will help increase deposit mobilisation by
the banking sector
Priority sector Interest subvention, lending targets,
farm debt waiver
Increasing benefits Regular budget feature for inclusive growth.
Negative for banks.
Tax break on provisions Provision for bad and doubtful
debts made by banks are allowed
Decreasing tax liability Increase in deduction/full deduction allowed
for calculating tax liability from the
as a deduction to the extent of 7.5%
of gross total income and 10% of
aggregate average rural advances
made by them
provisions covering bad and doubtful debts
Interest rate subsidy No such policy on lending to SEBs Interest rate subsidy on lending
to SEBs
Allay asset quality concerns in the power
financing segment
Help meet financing needs of SEBs
Top Picks
- Axis Bank
- Dena Bank
- ICICI Bank
- IndBk
- IOB
- J&K Bank
- SBI
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