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The Indian banking sector is happy with the Union Budget for 2023-24 presented by Finance Minister Nirmala Sitharaman.

For the banking sector which is seeing an increased credit offtake in the recent times, is expecting more business due to increased allocation for capital investment and also inflow of cash with the increase in rebate for tax payers under the Income Tax Act which is expected to bring them some low cost funds.

While that is for the bankers, Sitharaman too had announcements for the investors and banking public. She said to improve bank governance and enhance investors' protection, certain amendments to the Banking Regulation Act, the Banking Companies Act and the Reserve Bank of India Act are proposed.

However Sitharaman declined to elaborate on the proposed amendments when queried by the media as the Parliament session is on.

Be that as it may, Sitharaman said the capital investment outlay for FY24 is being increased steeply for the third year in a row by 33 per cent to Rs 10 lakh crore, which would be 3.3 per cent of the gross domestic product (GDP).

"The direct capital investment by the Centre is complemented by the provision made for creation of capital assets through Grants-in-Aid to States. The Effective Capital Expenditure of the Centre is budgeted at Rs 13.7 lakh crore, which will be 4.5 per cent of the GDP," she said.

Sitharaman added that the newly established Infrastructure Finance Secretariat will assist all stakeholders for more private investment in infrastructure, including railways, roads, urban infrastructure and power, which are predominantly dependent on public resources.

According to A.K. Goel, Chairman, Indian Banks Association (IBA) and Managing Director & CEO, Punjab National Bank, the increased capital expenditure could help in further increasing the demand for bank funds.

"Similarly, setting up of an Agriculture Accelerator Fund for encouraging innovative start-ups in rural areas would help banks to get more information on the agriculture sector, which is one of the main segments where the resources of banks are deployed. Besides, Rs 20 lakh crore in targeted agriculture credit from the banking sector will also help the agri sector immensely," Goel said.

The Finance Minister's announcement to infuse Rs 9,000 crore to revamp the Credit Guarantee Scheme will enable additional collateral-free guaranteed credit of Rs 2 lakh crore for micro, small and medium enterprises (MSMEs) through the banking sector.

According to CARE Ratings the proposal to allow carry forward of losses on strategic disinvestment, including that of the IDBI Bank, will support the strategic initiatives of the government.

The announcement that the government and its undertakings to return 95 per cent of the forfeited amount relating to bid or performance security in cases of failure by MSMEs to execute contracts during the Covid period will increase the credit profile of the sector, CARE Ratings added.

Sitharaman's announcement on the establishment of a Urban Infrastructure Development Fund managed by the National Housing Bank (NHB) would support lending by banks and non-banking finance companies (NBFCs) for infrastructure assets in tier-2/3 urban locations, according to CARE Ratings.

"In the area of green energy, the budget has provided for Rs 35,000 crore for priority capital investment towards energy transition and net zero objectives. There is also a proposal in the budget on green credit programme which will be notified under the Environmental Protection Act which envisages facilitating behavioural change for protecting the environment.

"This could intensify environmentally sustainable and responsive actions by companies, individuals and local bodies. Since banks are also focusing in sustainable financing, this proposal will also help the banks in their initiatives," Goel said.

Initiatives to promote business activities in GIFT IFSC and setting up of the National Financial Information registry are all positives for the banking sector too, Goel added.

According to CARE Ratings the proposal relating to normalisation of taxation on Market Linked Debentures (MLD) will adversely impact fundraising by NBFCs from high net worth individuals (HNI) and family office funds. The proposal is likely to impact bond capital markets at the margin.

The Finance Minister also said the financial sector regulators will be requested to carry out a review of existing regulations.