Status Will Attract Large Investors
The banking sector has gained despite the government not making any commitments for recapitalising lenders in addition to the Rs 10,000 crore proposed
earlier. The absence of capital infusion has been partially made up by tax breaks on bad loans, incentives for home loans and by allowing tradable securities
to be issued against bad loans.
Banks are expected to gain low-cost deposits due to the push for digitisation. The ban on cash transactions above Rs 3 lakh would help boost bank deposits
and bring down cost of funds for lenders. The biggest break for banks is the grant of infrastructure status to affordable housing loans and widening the
definition of affordable homes. HDFC chairman Deepak Parekh said the status would enable large investors, like the Employees Provident Fund Organisation,
to invest in housing.
Insurance firms are mandated to put a portion of their funds in infrastructure, and home loan companies are allowed to raise funds through external commercial
borrowing against their affordable home loan portfolio. According to India Ratings, public sector banks will require Rs 75,000 crore of capital to grow 8-9%
in FY19. As against this, the tax breaks on setting aside funds for bad loans is only marginal and overall will be negative for PSBs.
But while public sector banks will face growth constraints, they will find it easier to deal with bad loans. Also, banks can now get a tax break of 8% on the
capital that they set aside towards bad loans as against 7.5% earlier.
In his Budget speech, finance minister Arun Jaitley said, "Listing and trading of security receipts issued by a securitisation company or a reconstruction
company will be permitted in stock exchanges. This will enhance capital flows into the securitisation industry and will particularly be helpful to deal with
bank NPAs."
Newly licensed payment banks and small finance banks will stand to gain from digitisation. The government proposes to push banks into installing 20 lakh points
of sales devices.
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