Public banks demands remain largely unmet in Budget

Public sector banks are disappointed with the Union Budget 2015.

Budget Provisions

Allocated Rs 7940 crore for recapitalization of Public Sector Banks in 2015-16 to help them maintain comfortable level of CRAR in compliance with Basel-III norms.

In order to improve the Governance of Public Sector banks, the Government intends to set up an autonomous bank Board Bureau.

The Bureau will search and select heads of Public Sector banks and help them in developing differentiated strategies and capital raising plans through innovative financial methods and instruments.

This would be an interim step towards establishing a holding and investment Company for Banks.       

To further simplify the procedures for Indian Companies to attract foreign investments, it is decided to do away with the distinction between different types of foreign investments, especially between foreign portfolio investments and foreign direct investments, and replace them with composite caps.

Banks with foreign investment cap of below 74% would be able to attract more foreign investment.

Agriculture credit target placed at Rs 8.5 lakh crore for 2015-16, which the banks would surpass, against Rs 8 lakh crore targeted for 2014-15.

To bring parity in regulation of Non-Banking Financial Companies (NBFCs) with other financial institutions in matters relating to recovery, it is proposed that NBFCs registered with RBI and having asset size of Rs 500 crore and above will be considered for notifications as ‘Financial Institution’ in terms of the SARFAESI Act, 2002.

Bankruptcy law reform that brings about legal certainty and speed has been identified as a key priority for improving the ease of doing business.

SICA (Sick Industrial Companies Act) and BIFR (Bureau for Industrial and Financial Reconstruction) have failed in achieving these objectives.

We will bring a comprehensive Bankruptcy Code in fiscal 2015-16, that will meet global standards and provide necessary judicial capacity.

Government is committed to increasing access of the people to the formal financial system. In this context, Government proposes to utilize the vast Postal network with nearly 1,54,000 points of presence spread across the villages of the country as a Payments Bank contributing further to the Pradhan Mantri Jan Dhan Yojana.

Rs 25,000 crore in 2015-16 to the corpus of Rural Infrastructure Development Fund (RIDF) set up in NABARD; Rs 15,000 crore for Long Term Rural Credit Fund; Rs 45,000 crore for Short Term Co-operative Rural Credit Refinance Fund; and Rs 15,000 crore for Short Term RRB Refinance Fund.

Introduce a Gold Monetisation Scheme, which will replace both the present Gold Deposit and Gold metal Loan Schemes. The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account. Banks/other dealers would also be able to monetize this gold.

One way to curb the flow of black money is to discourage transactions in cash. Now that a majority of Indians has or can have, a RUPAY debit card. Finance Minister has proposed to introduce soon several measures that will incentivize credit or debit card transactions, and disincentivise cash transactions.

Proposed to create a Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of Rs 20,000 crore, and credit guarantee corpus of Rs 3,000 crore. MUDRA Bank will refinance Micro-Finance Institutions through a Pradhan Mantri Mudra Yojana. In lending, priority will be given to SC/ST enterprises.

Fiscal deficit targets paced at 3.9%, for 2015-16; 3.5% for 2016-17; and, 3.0% for 2017-18. The additional fiscal space will go towards funding infrastructure investment.

Stocks to watch

Axis Bank, ICICI Bank, HDFC Bank, Indusind Bank, Federal Bank, State Bank of India

Outlook

The Union Budget 2015-16 has disappointed the public sector banks with the lower than expected allocation of capital funds for 2015-16.

However, the move to allocate lower capital funds may be aimed at maintaining lower shareholding. More importantly, the major positive budget announcement related to the setting up of an independent bank board bureau, which will be responsible for appointments and capital-raising plans.

The access to Sarfaesi Act for NBFC would benefit in a big way.

The government intention to have more transactions through debit and credit cards moving away from cash transactions is also encouraging.