BUDGET EXPECTATIONS: BANKING & FINANCE SECTOR

16 Jan 2023 , 02:23 PM

With capital and solvency position of the public sector banks being the best in the last eight years and is expected to improve further, ICRA does not envisage any budgetary allocation for recapitalising public sector banks. Further, with profitability of the banks expected to remain strong, the incremental capital generation should be sufficient to take care of growth requirements. With housing for all continuing to be a focus area, targeted incentive schemes such as higher deduction for housing loans could help in boosting the demand as the affordability has got somewhat impacted by rising interest rates and increase in property prices.

Infrastructure finance will continue to be a thrust area for the Government and thus demand for credit from infrastructure-focused NBFCs is expected to remain high. A large part of this demand is expected to be met through the GoI-owned NBFCs including public sector banks. Thus, a greater clarity about the role of some of the existing GoI-owned NBFCs (including NABFID) would help in this regard. Also, to raise the resources for infrastructure financing at competitive costs, an increase in deductions allowed under Income Tax for long-term saving instruments like NPS/80C/tax saving bonds/infrastructure bonds etc. could be considered. This will also help to promote long-term savings and raise resources for funding the infrastructure sector. Similar concessions could also be considered for promotion of debt funds, which have mandate to invest in debt instruments issued by ESG compliant companies.

The GoI had infused fresh equity capital of Rs. 50 billion in March 2022 in PSU general insurance companies to augment the solvency profile. However, some entities continue to remain weak and would need further Government support in the form of fresh capital infusion. Lastly, ICRA has seen traction in previous budgetary announcement for privatising IDBI Bank. However, similar announcements for divestment/privatisation of other GoI-owned financial sector entities were also made in the past. An update with some roadmap can bring clarity to all the stakeholders associated with these financial institutions.