Financial sector legislative initiatives

| Updated on March 01, 2011

Housing finance: On account of increase in prices ofresidential properties in urban areas, the existing housing loanlimit increased from Rs 20 lakh to Rs 25 lakh for dwellingunits under priority sector lending.

The financial sector reforms initiated during the early 1990s have borne good results for the Indian economy. The UPA Government is committed to take this process further. Accordingly, I propose to move the following legislations in the financial sector:

(i) The Insurance Laws (Amendment) Bill, 2008;

(ii) The Life Insurance Corporation (Amendment) Bill, 2009;

(iii) The revised Pension Fund Regulatory and Development Authority Bill, first introduced in 2005;

(iv) Banking Laws Amendment Bill, 2011;

(v) Bill on Factoring and Assignment of Receivables;

(vi) The State Bank of India (Subsidiary Banks Laws) Amendment Bill, 2009; and

(vii) Bill to amend RDBFI Act 1993 and SARFAESI Act 2002.

In my last Budget speech, I had announced that Reserve Bank of India would consider giving some additional banking licences to private sector players. Accordingly, the RBI issued a discussion paper in August 2010, inviting feedback from the public. The RBI has proposed some amendments in the Banking Regulation Act. I propose to bring suitable legislative amendments in this regard in this session. RBI is planning to issue the guidelines for banking licences before the close of this financial year.

Public Sector Bank Recapitalisation

During 2010-11, the Government is providing a sum of Rs 20,157 crore for infusion in the Public Sector Banks to maintain Tier I Capital to Risk Weighted Asset Ratio (CRAR) at 8 per cent and increase government equity in some banks to 58 per cent. I propose to provide a sum of Rs 6,000 crore for 2011-12 to enable Public Sector Banks to maintain a minimum Tier I CRAR at 8 per cent.

As a part of financial strengthening of Regional Rural Banks, an amount of Rs 350 crore was given to these banks during this year. I propose to provide Rs 500 crore during 2011-12 to enable them maintain a CRAR of at least 9 per cent as on March 31, 2012.

Micro Finance Institutions

The Micro Finance Institutions (MFIs) have emerged as an important means of financial inclusion. Creation of a dedicated fund for providing equity to smaller MFIs would help them maintain growth and achieve scale and efficiency in operations. I propose to create in the course of the year, "India Microfinance Equity Fund" of Rs 100 crore with SIDBI. To empower women and promote their Self Help Groups (SHGs), I propose to create a “Women's SHG's Development Fund” with a corpus of Rs 500 crore. The Committee set up by RBI to look into issues relating to micro finance sector in India has submitted its report. The Government is considering putting in place appropriate framework to protect the interests of small borrowers.

The Rural Infrastructure Development Fund (RIDF) is an important instrument for routing bank funds for financing rural infrastructure. This is popular among State Governments. I propose to raise the corpus of RIDF XVII to Rs 18,000 crore in 2011-12 from Rs 16,000 crore in the current year. The additional allocation would be dedicated to creation of warehousing facilities.

Housing Sector Finance

To further stimulate growth in housing sector, I am liberalising the existing scheme of interest subvention of 1 per cent on housing loans by extending it to housing loan up to Rs 15 lakh where the cost of the house does not exceed Rs 25 lakh from the present limit of Rs 10 lakh and Rs 20 lakh respectively.

On account of increase in prices of residential properties in urban areas, I propose to enhance the existing housing loan limit from Rs 20 lakh to Rs 25 lakh for dwelling units under priority sector lending.

To provide housing finance to targeted groups in rural areas at competitive rates, I propose to enhance the provision under Rural Housing Fund to Rs 3,000 crore from the existing Rs 2,000 crore. To prevent frauds in loan cases involving multiple lending from different banks on the same immovable property, the Government has facilitated setting up of Central Electronic Registry under the SARFAESI Act, 2002. This Registry will become operational by March 31, 2011.

Published on February 28, 2011

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