Unlike any other earlier budgets, the banking sector this time around is very keenly watching the finance minister for his announcements. The sector has been hit by under capitalisation, non-performing assets from various government and private sector lending like power, infrastructure, agriculture, among others. Lower credit growth due to slowing economy has added to the woes of the banking sector.
Top on the list will be capital infusion in public sector banks in the form of tier 1 capital, which will be a positive move given the under capitalisation in most of the public sector banks.
Reduction in lock in period for term deposits to be eligible for tax deductions from 5 years to 3 years would bring the banking term deposits at par with other saving instruments which enjoy shelter under section 80C. This move would go a long way in correcting the asset liability mismatch in banks.
Any announcement to beef up the power sector, especially the ailing distribution companies will help the banking sector immensely. The sector currently accounts for almost Rs 1 lakh crore of non-performing assets. Restructuring of these loans or ways of strengthening the distribution companies will help the banking sector boost their balance sheet.
Passing of the Insurance Bill and raising of foreign limit from 26 percent to 49 percent will help banks having an insurance arm to unlock value.
The stock market will be interested in some clarity on issuance of new banking licenses. Strength of banks reflect the strength of the economy. With the economy on a weak wicket, Indian banks are looking at the government to provide it with the funds and strong policies to prevent further losses.
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