Budget 2020-21: Unlike in the past budgets, there has been no capital allocation for PSBs, in line with our estimates of limited capital requirements of PSBs during FY2021. Other key financial institutions such as NABARD, IIFCL and EXIM bank have been provided enough capital in our view for their growth requirements. The proposal to increase the deposit insurance coverage and assurance on safety of depositor money in scheduled commercial banks should support the deposit accretion of banks. However, given that the size of insured deposits is likely to increase, the deposit insurance premium paid by banks will increase their operating expenses and will be negative for their profitability to the extent they are not able to pass it on to the bank customers.
The proposal to offer subordinated debt to MSMEs from banks, which in turn will be guaranteed by CGTMSE, is positive for MSMEs; however, the proposal to extend the MSME loan restructuring window by another year is credit negative for banks over the medium to long term in the case of any adverse impact on credit behaviour of borrowers.
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The inclusion of more NBFCs under SARFAESI Act 2002 and reduction in the minimum loan amount for recovery under SARFAESI is a positive for NBFCs. However the minimum loan amount for HFCs under SARFAESI is much lower at `1 lakh. The focus on “Housing for All” with sizeable allocation under PMAY and extra budgetary allocation for PMAY-Urban and PMAY-Rural, coupled with higher tax incentives on self-occupied properties of up to `45 lakh, augurs well for banks and HFCs.