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Budget 2020: Reactions to provisions for the banking sector

Feb 01, 2020

The Budget seems to strike a balancing act between the urban and rural requirements.

New Delhi: Indian Finance Minister Nirmala Sitharaman announced a slew of measures with the aim of boosting people's income and their purchasing power.

The Budget provides credible numbers in terms of the fiscal math, recognising the revenue shortfall faced this year. The budget is apparently a pro-consumption budget.

OneWorld South Asia brings comprehensive post- budget 2018-19 reactions on the banking sector from the corporate world.

Abheek Barua, Chief Economist, HDFC Bank.

The Budget provides credible numbers in terms of the fiscal math, recognising the revenue shortfall faced this year. It uses up the 50bps point leeway that the FRBM act provides for both this and the next year which is a welcome step.

The budget commits to increasing the expenditure by 13% in 2020-21 with increased allocations for education, health and certain schemes in the agricultural sector. That said, this expenditure increase, coupled with the income tax cuts, does not seem to suggest a large fiscal stimulus that the current slowdown perhaps warranted. Of course, the fiscal space to do that was limited to begin with.

The Fiscal Responsibility and Budgetary Management Act restrains the FM from deviating by more than 0.5 per cent of GDP from a glide path for the deficit of 3.3 per cent for 2019-20 and 3 per cent for the next.

Those who are disappointed with the absence of more overtures to the financial sector either in the form of more recapitalization resources for stressed public sector banks or a fiscal commitment to buy out the pile of toxic assets that continue to impede fund flow might draw some comfort from a measure that government will offer support by guaranteeing securities floated.

While need to await the fine-print on how this will work and how quickly this will be implemented, this move might be helping in easing the logjam in the financial to some degree. Government guarantees could help cash-strapped NBFC borrow at lower rates. It could also enable the central bank to offer cash in exchange for these securities if it were to plump for some out of the box measures to attenuate risk aversion in the markets.

R K Gurumurthy, Head Treasury, Lakshmi Vilas Bank.

The first full budget of this Government has focus on almost all sectors and is growth oriented. The budget had to balance between reducing expenditure (or low carber deficit) and accepting a weaker growth. And under the circumstances, this has been done well. With both real and nominal growth still low, fiscal consolidation may have been impossible. Hence the utilisation of the 50 basis room for fiscal profligacy. The guidance for FY 2021 is significantly predicated on successful disinvestment as tax collections are still sub-par.

Tinkering with the personal tax and some structural changes in the way DDT will work are cosmetic benefits that the small and medium investor will like. The worry is that there is no specific mention for bank recapitalisation, which when read with RBI’s Financial Stability Report that NPLs could still haunt Banks in India, could raise concern and cripple the ability of banks to lend.

Bank depositors get a shot in the arm with the upward revision in deposit insurance cover. While this could mean some expenditure for the Bank, this would certainly give comfort to retail savers. Similarly, the proposal to amend Banking laws to strengthen cooperative banks should also infuse more confidence among savers.

Gross and Net borrowings are marginally higher. Market may be able to absorb the incremental borrowing without much impact. Overall a compact budget”

Kumarmanglam Vijay, Partner, J. Sagar Associates.

Finance Minister has proposed to bring in a scheme for resolution of outstanding income tax litigation by allowing taxpayers to pay only outstanding tax before March 31, 2020 to settle the same. In case demands were to be paid after March 31 2020 an additional amount may have to be paid. Exact details of the scheme are awaited. This is a very significant step to curb litigation in line with other  steps introduced by the Government in recent past such as increasing threshold for filing of appeals by department. A very welcome step indeed.

Umesh Revankar, MD and CEO, Shriram Transport Finance.

The Budget strikes a balancing act between the urban and rural requirements. Government’s thrust on creating better infrastructure, building strategic highways like Chennai – Bangalore, Delhi - Mumbai will boost the sector and further create more demand and employment. Creating National logistics policy will be beneficial as it will bring in efficiency and reduce the turnaround time of the vehicle. Under the SARFAESI Act, the debt recovery has reduced from Rs.1 crore to Rs.50 lakh is one step ahead. We would still expect it to be on par with banks which currently stand at Rs.1 lakh. All in all, through this budget, the government is trying to simplify the existing complicated processes like GST, Income tax filing and bring in efficiency and growth “

George Alexander Muthoot, MD, Muthoot Finance.

Budget 2020 plays the balancing act very well. The enhancement of partial credit guarantee scheme for NBFCs is very encouraging for the sector as it addresses the liquidity issues.

The thrust to create huge employment opportunities can be seen in the budget. Increased focus on MSME sector through favorable policies, allocation of Rs. 30,757 crore for J&K and Rs. 5,958 crore for Ladakh will benefit small businesses.

The extended tax benefit for affordable housing will benefit the lower and middle income groups in the country thereby providing much needed booster for affordable housing projects.

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