Budget 2018: The 10% hike in agriculture credit to Rs 11 lakh crore and the proposal to hike the minimum support prices of all crops at 1.5X of production costs augur well for rural incomes and spending. This should benefit banks through improved credit offtake as well as an improvement in asset quality in the agriculture segment. The proposal to allow RRBs to raise market capital would enable these institutions to support credit flow to the rural sector. The proposals to review the refinancing norms for NBFCs under MUDRA and receivable discounting by PSBs would improve credit supply to MSMEs and support the credit growth of banks and NBFCs. With more than 80% of the bond issuances restricted to “AAA” and “AA” rating categories and the top-10 issuers accounting for ~40% of the bond issuances, the proposed amendments would broaden the debt capital markets.
The fact that projected net market borrowings of Rs 4.62 lakh crore remain at almost the same level as in the present fiscal is likely to make-up for the higher fiscal deficit envisaged in the Budget. Moreover, if the central bank reviews the foreign portfolio investors’ (FPIs’) investment limit in Indian bonds, some part of the supply overhang would also get neutralised. The increase in exempted interest income is unlikely to significantly improve deposit base, as the tax exemption is restricted to senior citizens who anyways prefer bank deposits. However, the proposal to provide insurance and pension benefits to the poor through Jan Dhan accounts can improve the deposit base of banks to some extent.