A pro-growth Budget that stimulates investments in infrastructure and boosts consumption will, no doubt, benefit the beleaguered banking sector. But the industry is looking forward to more push on structural reforms — be it operationalising the Banks Board Bureau (BBB), setting out a clear roadmap for consolidation within the sector or the Centre reducing its stake in PSU banks.

Some of these did find mention in the previous Budget but failed to be implemented in full. The BBB, for instance, has not delivered much in terms of helping banks strategise and raise capital. It has only focussed so far on appointment of top officials. Also, for truly autonomous boards, the Centre needs to dilute its stake to below 51 per cent in PSU banks. For this, the Centre has to repeal the special Acts under which banks are constituted. As a test case, the previous Budget had stated that it would start the process of dilution at IDBI Bank — which is governed by the Companies Act. But nothing much has happened on this front. All eyes are now on the upcoming Budget to take these reforms forward.

The Centre’s proposal on the bank recapitalisation front is also keenly awaited as PSBs continue to grapple with scarce capital and weak earnings. The Centre, being the largest shareholder, has been infusing capital into PSU banks year after year, in which it holds stakes ranging between 53 and 85 per cent. In the last five years, the Centre has infused over ₹85,000 crore (2011-2016). In the 2015-16 fiscal, the Centre decided to infuse capital in the beginning of the financial year to help banks plan their lending and other capital-raising activities for the year. But banks’ losses have continued to eat into their reserves and hence capital.

Given that under the Indradhanush plan, the Centre has proposed to infuse ₹10,000 crore of capital in 2017-18, a far lower amount than that committed in the previous fiscal (₹25,000 crore), its approach to bank recap this time around will be critical.

Bad loans On the bad loan front, in the previous Budget there were expectations that the Centre may consider setting up a ‘bad bank’ to take over bad loans. But with the Bankruptcy Law in place (where again, effective implementation is awaited), expectations have shifted to tax concessions on the bad loan provisioning.

The RBI’s asset quality review has led to a steep rise in bad loan provisioning for which banks get only limited tax relief (up to 7.5 per cent of total income). Bankers have made a pitch for a 100 per cent deduction on bad debt provisioning.

Between March and September 2016, gross NPAs for PSBs went up from 9.8 per cent to 11.8 per cent. Post demonetisation, the thrust is on digital modes of transactions and hence tax concessions in the upcoming Budget for customers and merchants using digital modes of payment is also on the industry’s wish list.

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