Six expectations of banking sector from Budget 2017
Budget 2017 Date - With the Union Budget 2017 just a sniffing distance away, banking stocks are on a roll. The BSE Bankex, the barometer of banking stocks, has shot up 12% since its December lows in the anticipation of budgetary stimulus to keep demons of demonetisation at bay. Since the low 2,0148 hit on December 26, the Bankex has risen 12% to settle at 22,566 last week. This is against an 8% rise in Sensex during the same period. Bank stocks such as YES Bank (up 27%), Federal Bank (up 26%), Punjab National Bank (up 20%), IndusInd Bank (up 18%) and Bank of Baroda (up 14%) have seen a phenomenal rally in the period mentioned. Others such as Kotak Mahindra Bank, HDFC Bank, ICICI Bank, AXIS Bank and SBI too gained anywhere between 9% and 11%.
Below are six concerns that market participants hope FM Arun Jaitley will address in Budget 2017: 1) Roadmap and incentives for digital push Marketmen expects the government to provide benefits to boost digital transactions. “To increase digital penetration, the government may consider tax exemption for a) customers conducting transactions digitally/electronically over a certain limit, b) vendors/merchants exceeding a certain threshold in value of digital transactions,” said brokerage Motilal Oswal Securities in its Budget preview report.
2) Credit off-take The note ban has resulted in deluge of deposits in the banks, which would only be a liability as long as the credit growth does not pick up. Data showed that credit demand slowed to a multi-decade low of 5.1% for the fortnight ended December 23, despite 175 bps reduction in repo rate since January 2015. “For the banking sector to see a credit revival, the industrial credit has to pick up. That can be done only when capex is enhanced by the government and the private sector,” said Angel Broking in a Budget preview report.
3) Higher capital infusion Pankaj Pandey, Head of Retail Research at ICICI Direct said that PSU banks require around Rs 1.8 lakh crore capital over the next four years. Under the Indradhanush plan, the government has allocated Rs 70,000 crore. Pandey expects an upward revision to the capital infusion in Budget 2017, as there exists a shortfall of Rs 1.1 lakh crore factoring in the Indradhanush plan.
4) Tax concessions on bad loans
There are hopes for tax concessions on the bad loan provisioning as the RBI’s asset quality review has led to a steep rise in provisions. Banks get only limited tax relief (up to 7.5% of total income) on the same. RBI’s Financial Stability Report noted that the combined bad loans in scheduled commercial surged to 12.3% of total assets in September 2016, from 11.5% in March 2016.
5) Roadmap for disinvestment in PSU banks Although the government has set up Bank Board Bureau to help banks raise capital, nothing concreate has been announced so far. Besides, for an effective divestment to raise significant funds, the government would require amending of Banking Companies Act that may pave way for diluting stake in PSU banks to below 51%. Although FM Jaitley did indicate in his Budget 2016 speech to consider reducing the stake in IDBI Bank to less than 50% from 80.2%, he hasn’t gone for it as yet. Any announcement on stake dilution will be much awaited in Budget 2017.
6) Higher allocation to infrastructure, housing and urban development The asset quality of the banking sector has deteriorated sharply due to compounding problems in the commodity sector. With commodity prices recovering, government’s push to infrastructure may do the trick to boost profitability of banks. “A higher thrust in Infrastructure could help create additional demand for steel and other metals, which will indirectly benefit the banking sector, as the underlying companies would be able to service their debt,” said Angel Broking.
Article Source – Business Standard