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India Equity Research Reports, IPO and Stock News
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Banks NEUTRAL
Measures
Total market borrowing for FY11, as announced by the finance minister in the
budget, was INR3.58t.
The FII limit for investment in corporate bonds, with residual maturities of over five
years (issued by companies in the infrastructure sector) has being increased to
USD40b from the current USD25b. FIIs will also be allowed to invest in unlisted
bonds issued by SPVs floated by infrastructure companies, with a lock-in period of
three years (FIIs will be allowed to trade in these bonds amongst themselves).
There was a fresh allocation of INR60b for recapitalisation of public sector
undertaking (PSU) banks towards their tier-1 requirements. Additionally another
INR5b will be provided to Regional Rural Banks to maintain a CRAR of at least 9%.
The existing loan limit of INR2m (to qualify for priority sector norms) was raised to
INR2.5m. Interest rate subvention of 1% on housing loans is now extended up to
INR1.5m (from the earlier INR1m) provided the cost of the property does not
exceed INR2.5m (from the previous INR2m).
Financial sector reforms to be introduced – 1) The Insurance Laws (Amendment)
Bill, 2008 2) The Life Insurance Corporation (Amendment) Bill, 2009 3) The revised
Pension Fund Regulatory and Development Authority Bill 4) Banking Laws
Amendment Bill, 2011 5) The State Bank of India (Subsidiary Banks Laws)
Amendment Bill 2009 and 6) Bill to amend RDBFI Act 1993 and SARFAESI Act
2002 7) Guidelines for new banking licenses
There is to be lower tax rate of 15% on dividends received by Indian companies
from foreign subsidiaries.
Impact
Lower-than-expected market borrowing, if successful, will be a definite positive for
banks as it does not crowd out private sector loan demand and also eases upward
pressure on bond yields.
Facilitating FII investment in infrastructure corporate bonds, though desirable from
the point of view of improving the ALM position in the sector, is, however, a longterm
gamble, in our opinion. We do not anticipate a sudden deluge of FII money
into the corporate bond market until other hygiene factors like market depth,
transaction costs, hedging mechanisms, etc., are sorted out.
We think that new banking licenses will be beneficial to many leading NBFCs that
have evinced interest in obtaining banking licenses. Other sector reform bills, if
passed would be a long-term positive for the sector.
In summary, the near- to medium-term relevance of this budget for the Indian
banking sector depends on the ability of the government to contain its market
borrowing at the levels outlined today.
Top picks: Axis Bank, State Bank of India, ICICI Bank.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Banks NEUTRAL
Measures
Total market borrowing for FY11, as announced by the finance minister in the
budget, was INR3.58t.
The FII limit for investment in corporate bonds, with residual maturities of over five
years (issued by companies in the infrastructure sector) has being increased to
USD40b from the current USD25b. FIIs will also be allowed to invest in unlisted
bonds issued by SPVs floated by infrastructure companies, with a lock-in period of
three years (FIIs will be allowed to trade in these bonds amongst themselves).
There was a fresh allocation of INR60b for recapitalisation of public sector
undertaking (PSU) banks towards their tier-1 requirements. Additionally another
INR5b will be provided to Regional Rural Banks to maintain a CRAR of at least 9%.
The existing loan limit of INR2m (to qualify for priority sector norms) was raised to
INR2.5m. Interest rate subvention of 1% on housing loans is now extended up to
INR1.5m (from the earlier INR1m) provided the cost of the property does not
exceed INR2.5m (from the previous INR2m).
Financial sector reforms to be introduced – 1) The Insurance Laws (Amendment)
Bill, 2008 2) The Life Insurance Corporation (Amendment) Bill, 2009 3) The revised
Pension Fund Regulatory and Development Authority Bill 4) Banking Laws
Amendment Bill, 2011 5) The State Bank of India (Subsidiary Banks Laws)
Amendment Bill 2009 and 6) Bill to amend RDBFI Act 1993 and SARFAESI Act
2002 7) Guidelines for new banking licenses
There is to be lower tax rate of 15% on dividends received by Indian companies
from foreign subsidiaries.
Impact
Lower-than-expected market borrowing, if successful, will be a definite positive for
banks as it does not crowd out private sector loan demand and also eases upward
pressure on bond yields.
Facilitating FII investment in infrastructure corporate bonds, though desirable from
the point of view of improving the ALM position in the sector, is, however, a longterm
gamble, in our opinion. We do not anticipate a sudden deluge of FII money
into the corporate bond market until other hygiene factors like market depth,
transaction costs, hedging mechanisms, etc., are sorted out.
We think that new banking licenses will be beneficial to many leading NBFCs that
have evinced interest in obtaining banking licenses. Other sector reform bills, if
passed would be a long-term positive for the sector.
In summary, the near- to medium-term relevance of this budget for the Indian
banking sector depends on the ability of the government to contain its market
borrowing at the levels outlined today.
Top picks: Axis Bank, State Bank of India, ICICI Bank.
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