Post Budget Banking Sector Analysis: Silent on New Banking Licence, Impact Neutral

Positive:

• The budget has proposed to provide a sum of Rs 15,888 crore of capitalisation for the public sector banks, regional rural banks and other financial institutions, including NABARD. Last year the budget had estimated capital infusion of Rs 6,000 crore in PSBs but the real scenario is that the government is infusing capital of more than Rs 16,000 crore during this financial year. The estimate for this year could be considered as appropriate and therefore this could be a positive factor for the public sector banks.
• A central ‘know your customer’ depository to be developed in 2012-13 to avoid multiplicity of registration and data upkeep. This will help the banks to maintain a systematic record of their customers and the banks would be able to work in an efficient manner. To some extent this may bring down the operational expenses of the bank.

Negative:

• The fiscal deficit is expected to be 5.1 per cent of the GDP for FY13. For financing this deficit the government will do market borrowing of Rs 4,79,000 crore. The higher market borrowings will further have an upward pressure on the interest rates. Today a 10-year bond yield has increased by 0.07 to 8.43 per cent. The RBI which wishes to cut down the rate may again take a pause in the near future.

Neutral:

• There is a possibility of creating a public financial holding company to raise resources to meet the capital requirements of the PSU banks under examination. This will help the banks but there will be no immediate impact on the sector.
• Revised guidelines on priority sector lending to be issued after stakeholders’ consultation. This will have no effect as of now on the banks.

Conclusion:

Overall the budget was neutral for the banking space. Today the BSE Bankex closed down by 2.22 per cent with stocks closing lower such as the SBI down by 3.11 per cent, HDFC Bank down by 0.64 per cent and ICICI Bank closing down by 1.42 per cent. The budget did not provide any guidance for the licensing of new banks in the private sector. As for the issues of priority sector lending and on creating a public financial holding company for the banks, the budget has created no impact on an immediate basis. It seems that the FM (after giving estimates of fiscal deficit) has now passed on the buck to the RBI governor about what needs to be done about the interest rate movement.