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India Equity Research Reports, IPO and Stock News
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BANKING & NBFCS
BUDGET HIGHLIGHTS & IMPACT
n The budgeted fiscal deficit for FY12E is 4.6% as against 5.1% (revised
estimate) reported for FY11; net market borrowing budgeted at Rs.3.43
tn for FY12E.
Impact: The Government needs to borrow Rs.3.43 trillion from the market
to meet its fiscal deficit. This is lower than the market expectations and reduces
the concern of crowding out effect on private investment. RBI has exhibited
its capability in recent years, when it managed additional borrowings in the
non-disruptive manner. We believe, RBI is likely to manage the market borrowing
program without much impacting the yield curve.
n The budget has provided Rs.202 bn for recapitalization of state-run
banks.
Impact: Rs.202 bn has been earmarked for recapitalization of PSU banks to
enable them to maintain the minimum tier-I capital at 8.0%. The proposed
recapitalization includes Rs.127 bn loans taken from World Bank and Rs.60
bn (plus another Rs.15 bn) allocated through budget.
This would help PSU banks in maintaining the minimum tier-I capital at 8%
and increase government stake in some of the banks to 58%. This is likely
to aid them in growing their loan book without facing capital constraint.
n FII limit in Infrastructure bonds with residual maturity of 5 years to be
raised to $25 bn ($5 bn earlier) taking the overall limit to $40 bn ($20 bn
earlier) in corporate bonds.
Impact: This hike in FII limits will help increase the investment in infrastructure
sector and lead to development of the corporate bond markets in the country.
In turn, it would also encourage capital inflows to meet the high current account
deficit in our economy.
FIIs would also be allowed to invest in unlisted bonds with a minimum lockin
period of 3 years, during which they can trade amongst themselves. We
believe this would ease fund flow to the special purpose vehicles of infrastructure
companies.
n Extended the 1% interest subvention scheme on housing finance upto
Rs.1.5 mn (Rs.1.0 mn earlier) and house value of Rs.2.5 mn (Rs.2.0 mn
earlier).
Impact: With government’s thrust on increasing affordable housing and to
continue stimulating small ticket home loan borrowers, the budget has extended
the 1% interest subvention scheme on housing loan upto Rs.1.5 mn (Rs.1.0
mn earlier) and house value of Rs.2.5 mn (Rs.2.0 mn earlier). We opine that,
the move will be significantly positive for the housing finance companies in
maintaining the traction in the home loan growth (especially small ticket
mortgages) in India.
n Allocation of ~Rs.2.14 tn towards infrastructure sector (23.3% growth
YoY); constitutes 48.5% of gross budgetary support to plan expenditure
Impact: Continuing thrust on infrastructure development is positive for overall
infrastructure development space. This will offer attractive opportunity to
domestic specialized financing institution to participate in development by way
of project financing as well as equity investment.
n Extension of the additional deduction of Rs.20,000 to investments made
by individuals in infrastructure bonds for one more year.
Impact: The extension of tax deduction on infrastructure bonds investment
for one more year would help mobilize retail savings into the sector. This is
positive for Infrastructure financing NBFCs.
n Raising the target of credit flow to the farmers from Rs.3.75 tn to Rs.4.75
tn.
Impact: By raising the growth target of ~27% for agriculture loans which comes
under priority sector loans (PSL) category is slightly negative for PSU banks
who would be forced to lend more than the system growth.
n To allow tax free bonds of Rs.300 bn to be issued by various government
undertakings in FY12.
Impact: This includes tax free bonds of worth Rs.100 bn by Indian Railway
Finance Corporation, Rs.100 bn by NHAI, Rs.50 bn by HUDCO and Rs.50 bn
by Ports. This is likely to boost infrastructure developments in railways, ports,
housing and highways development. This is positive for Infrastructure financing
NBFCs.
n Creation of “India Microfinance Equity Fund” of Rs.1.0bn with SIDBI to
support MFI in their growth targets.
Impact: Creation of a dedicated fund for providing equity to smaller MFIs would
help them in achieving scale and efficiency in their operations. Although it
is a small amount, it recognizes the importance of MFIs in achieving the goal
of financial inclusion.
n To permit SEBI registered MFs to accept subscriptions of foreign investors
who meet the KYC norms.
Impact: The proposed entry of FII investment into the MFs space will allow
strong fund flows in the coming year. This is likely to be positive for domestic
Financial Institutions having asset management business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BANKING & NBFCS
BUDGET HIGHLIGHTS & IMPACT
n The budgeted fiscal deficit for FY12E is 4.6% as against 5.1% (revised
estimate) reported for FY11; net market borrowing budgeted at Rs.3.43
tn for FY12E.
Impact: The Government needs to borrow Rs.3.43 trillion from the market
to meet its fiscal deficit. This is lower than the market expectations and reduces
the concern of crowding out effect on private investment. RBI has exhibited
its capability in recent years, when it managed additional borrowings in the
non-disruptive manner. We believe, RBI is likely to manage the market borrowing
program without much impacting the yield curve.
n The budget has provided Rs.202 bn for recapitalization of state-run
banks.
Impact: Rs.202 bn has been earmarked for recapitalization of PSU banks to
enable them to maintain the minimum tier-I capital at 8.0%. The proposed
recapitalization includes Rs.127 bn loans taken from World Bank and Rs.60
bn (plus another Rs.15 bn) allocated through budget.
This would help PSU banks in maintaining the minimum tier-I capital at 8%
and increase government stake in some of the banks to 58%. This is likely
to aid them in growing their loan book without facing capital constraint.
n FII limit in Infrastructure bonds with residual maturity of 5 years to be
raised to $25 bn ($5 bn earlier) taking the overall limit to $40 bn ($20 bn
earlier) in corporate bonds.
Impact: This hike in FII limits will help increase the investment in infrastructure
sector and lead to development of the corporate bond markets in the country.
In turn, it would also encourage capital inflows to meet the high current account
deficit in our economy.
FIIs would also be allowed to invest in unlisted bonds with a minimum lockin
period of 3 years, during which they can trade amongst themselves. We
believe this would ease fund flow to the special purpose vehicles of infrastructure
companies.
n Extended the 1% interest subvention scheme on housing finance upto
Rs.1.5 mn (Rs.1.0 mn earlier) and house value of Rs.2.5 mn (Rs.2.0 mn
earlier).
Impact: With government’s thrust on increasing affordable housing and to
continue stimulating small ticket home loan borrowers, the budget has extended
the 1% interest subvention scheme on housing loan upto Rs.1.5 mn (Rs.1.0
mn earlier) and house value of Rs.2.5 mn (Rs.2.0 mn earlier). We opine that,
the move will be significantly positive for the housing finance companies in
maintaining the traction in the home loan growth (especially small ticket
mortgages) in India.
n Allocation of ~Rs.2.14 tn towards infrastructure sector (23.3% growth
YoY); constitutes 48.5% of gross budgetary support to plan expenditure
Impact: Continuing thrust on infrastructure development is positive for overall
infrastructure development space. This will offer attractive opportunity to
domestic specialized financing institution to participate in development by way
of project financing as well as equity investment.
n Extension of the additional deduction of Rs.20,000 to investments made
by individuals in infrastructure bonds for one more year.
Impact: The extension of tax deduction on infrastructure bonds investment
for one more year would help mobilize retail savings into the sector. This is
positive for Infrastructure financing NBFCs.
n Raising the target of credit flow to the farmers from Rs.3.75 tn to Rs.4.75
tn.
Impact: By raising the growth target of ~27% for agriculture loans which comes
under priority sector loans (PSL) category is slightly negative for PSU banks
who would be forced to lend more than the system growth.
n To allow tax free bonds of Rs.300 bn to be issued by various government
undertakings in FY12.
Impact: This includes tax free bonds of worth Rs.100 bn by Indian Railway
Finance Corporation, Rs.100 bn by NHAI, Rs.50 bn by HUDCO and Rs.50 bn
by Ports. This is likely to boost infrastructure developments in railways, ports,
housing and highways development. This is positive for Infrastructure financing
NBFCs.
n Creation of “India Microfinance Equity Fund” of Rs.1.0bn with SIDBI to
support MFI in their growth targets.
Impact: Creation of a dedicated fund for providing equity to smaller MFIs would
help them in achieving scale and efficiency in their operations. Although it
is a small amount, it recognizes the importance of MFIs in achieving the goal
of financial inclusion.
n To permit SEBI registered MFs to accept subscriptions of foreign investors
who meet the KYC norms.
Impact: The proposed entry of FII investment into the MFs space will allow
strong fund flows in the coming year. This is likely to be positive for domestic
Financial Institutions having asset management business.
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