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Access to capital, issue of new bank licences and measures to help banks shore up their dwindling deposit inflows are the key expectations that the banking sector has from the Budget.
As per RBI estimates, the Government will have to infuse additional capital of Rs 90,000 crore to retain its shareholding in the > public sector banks (PSBs) at current levels to meet Basel III norms over the next five years.
Thus, topping the wish list is the expectation of capital infusion of nearly Rs 20,000 crore into PSBs in FY14. While this will be positive for all PSBs, it will also help revive the overall credit cycle.
Lid on freebies
The passing of the ‘Banking Laws Amendment Bill’ in December has paved the way for new banking licences.
While the final guidelines are yet to take shape, further clarity on the entry of corporate players will be keenly watched.
The previous Budget saw increase in agriculture lending by Rs 1 lakh crore to Rs 5.75 lakh crore and an additional interest subvention of 3 per cent for prompt paying farmers (retaining the 7 per cent interest subvention scheme for short-term crop loans). However, a tight fiscal situation is expected to keep the big freebies at bay this time around.
The Government, however, may continue to increase agricultural lending target, to better address financial inclusion. This, in turn, would be negative for all PSBs already weighed down by asset quality concerns. Banks are hoping for a relaxation of the lock-in period on their tax saving deposits from five to three years to bring it on par with other tax saving schemes.
If implemented, it will be positive for all banks as it will help mobilise resources for their lending requirements.
They also hope for a proposal to allow them to float tax-free bonds for infrastructure financing. There is also a demand to increase the tax deducted at source (TDS) limit on fixed deposit, which stands currently at Rs 10,000.
Aside from these, indirect benefits in the form of lending infrastructure status to affordable housing may benefit banks such as SBI and ICICI bank in particular, or housing finance companies such as Dewan Housing, LIC Housing Finance, Gruh Finance, etc.
NBFC space
From the non-banking financial (NBFC) space, there are demands for a level playing field with banks. For starters, NBFCs want to be brought under the purview of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, which currently allows both banks and housing finance companies to take action against defaulting borrowers by way of seizing their assets. Similarly, removal of tax deduction at source for NBFC deposits (available to banks up to Rs 10,000), and allowing deductions on provisions for non-performing assets are other demands from NBFCs to bring them at par with banks.
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