With the Indian banking sector stable plank with the ghosts of non-performing assets (NPA) vanishing -- at least for now -- there may not be any major announcements by Finance Minister Nirmala Sitharaman as to capital infusion in public sector banks or even their disinvestment in the upcoming Union Budget, said experts.
With the credit offtake being good while deposit mobilisation lagging behind, the Centre may announce something to increase bank deposits, they added.
"The banking sector -- government and private -- is stable now. We don't expect any capital infusion announcement by the Finance Minister for the public sector banks," Sanjay Agarwal, Senior Director, CARE Ratings, told IANS.
He also said there may not be any announcement relating to disinvestment of the public sector banks.
"The privatisation of IDBI Bank is moving ahead. The government may wait and watch post IDBI Bank privatisation relating to disinvestment in public sector banks. The process of privatisation of government banks has to be streamlined," Agarwal added.
According to a report by Emkay Global Financial Services, the government may name the two banks that would be privatised.
The report also said the banking sector witnessed slight moderation in credit growth to 15 per cent year-on-year (YoY) for the fortnight ended December 30, 2022 (vs 17.4 per cent the previous fortnight), mainly due to the base effect (heavy lending to oil PSUs last year), while underlying growth in absolute terms remained robust.
"Deposit growth continued to be a laggard, at 9.2 per cent YoY, which remains a concern amid the tight liquidity situation, resulting in most banks turning aggressive in raising deposit rates in the last quarter," Emkay Global said.
"The interest on deposits has to be hiked by the banks. The budget may have some announcements on credit support or tax support for bank depositors," Agarwal said.
According to Emkay Global, the banking industry would look for growth boosters in the budget like:
1. Announcement of large infra/power and defence projects with private participation, to revive capex demand;
2. Increase in bad-debt-provision deduction, under Sec 36(1)(viia) from the current 7.5 per cent of adjusted total income plus 10 per cent of average aggregate advances made by rural branches, can be expected;
3. Increase in the FPI/FII limit for public sector banks, which though looks unlikely, given there is already enough headroom;
4. Update on the Central Bank Digital Currency (CBDC), post the initial pilot run by the Reserve Bank of India (RBI), and measures to further boost digital adoption;
5. Tax relief on merger/de-merger transactions, to facilitate implementation of a holding company structure.
According to CARE Ratings' Agarwal, the budget may have an announcement relating to support to micro small medium enterprises (MSME).
"Introduction of new incentives to encourage domestic production targeting MSMEs would help us move towards becoming Atmanirbhar. This would promote domestic economy, employment and help us avoid importing of low value-add products," opined Venkatraman Venkateswaran, Group President & CFO, Federal Bank.
"We anticipate that the government will establish an export promotion fund to help MSMEs expand their footprint globally. Additionally, developing a broad-based interest equalisation or subsidy schemes for exporters, along with measures for simplifying taxation, incentives towards ESG spending and tax incentives linked to employment generation can help re-energise the small business ecosystem," said Sudarshan Chari, Executive Director & Head, Business Banking, DBS Bank India.
Queried about the non-banking finance companies (NBFC), Agarwal said the government may extend the provisions of the SARFAESI regulations.
In a survey conducted by CARE Ratings NBFC officials had wished that the government would bring their sector at par with banks, small finance banks and housing finance companies in terms of SARFAESI regulations, wherein they are also allowed to apply for loans above Rs1 lakh as against the cut-off of Rs 20 lakh as of now.
"Gold loans provided by NBFCs are not considered priority status and hence, specifically to gold loans NBFCs we expect restoring priority sector status to eligible gold loans, including microloans, loans to farmers and microbusinesses. We also hope that the Government will now permit the securitisation of short-term gold loans without the minimum holding period (MHP) requirement but with a minimum retention requirement (MRR) of 20 per cent of the book value of the loans being securitized/20 per cent of the cash flows from the assets assigned," George Alexander Muthoot, MD, Muthoot Finance
Agarwal also said the Finance Minister Sitharaman may not announce anything relating to disinvestment in its insurance companies while the three general insurers need additional capital infusion.
It should be said, the government owned four general insurers -- The Oriental Insurance Company Limited, National Insurance Company Limited, The New India Assurance Company Limited and United India Insurance Company Limited -- are in the process of implementing the rejig measures suggested by consultancy firm EY.