The document summarizes key points from the Indian budget that impact the banking sector. It notes that the budget proposes to provide Rs. 15,888 crore for capitalization of public sector banks, regional rural banks, and other financial institutions. However, it also points out that the high fiscal deficit of 5.1% of GDP could limit the RBI's ability to cut interest rates, which may adversely impact credit growth. Overall, the recapitalization of public sector banks is seen as positive for the sector, while the large fiscal deficit is viewed as a potential negative.

1. PRESENTED BY-
RISHAV RAJ

3. SOME HIGHLIGHTS
 EXPECTED GROWTH OF GDP - 6.9%
 INCLUSIVE GROWTH
 SERVICE TAX : 10.30%
12.36%
 PSU’s BANKS PLANS FOR FY13 = Rs.15,888 CR

4.  RBI is the regulator for Banking & NBFC
sector and hence its policy matters are more relevant for
them.
 Last year, government had estimated net borrowings
to come at Rs.3.43 tn for FY12, however, it is likely to
come higher at Rs.4.54 tn.

5. In January 2012, RBI had cut the CRR by 50 bps to
5.5% and it is widely expected that one more CRR cut may
be on the anvil, which could infuse Rs.320 bn into the
system. The CRR cut is definitely beneficial for banks as
they could lend an additional 0.5% of deposits to people that
were not earning any interest earlier.
Inflation is likely to average around 6% in FY13 after
factoring in diesel decontrol and recovery in INR. With
inflation coming under RBI's comfort zone, we might expect
RBI to unwind its tight monetary policy stance in the
beginning of FY13.

6. On asset quality front, Indian banks are likely to witness
rising stress on their loan book especially in sectors like
Infrastructure, Aviation, Textiles, Agriculture, Construction
and SMEs.
 For the upcoming budget, we expect recapitalization of
PSU banks in the form of Tier-I capital, which is needed for
their balance sheet growth.

7.  There could also be relaxation in the lock-in
period for savings from five years to three years, which
qualifies for tax benefits (section 80C). This is likely to
increase the attraction of term deposits and make it at par
with other tax saving instruments.
 Bankers have also asked the FM to increase the TDS
limit on interest on bank deposits from 10K to 50K. This
could help the banks in attracting more high-value term
deposits, which will be positive if it comes in the budget.
 Another demand from the sector is for allowing banks to
issue tax free Infrastructure bonds as they fund more than
half of our Infrastructure funding requirement. However, we
believe, status quo is likely to be maintained on both these
above demands.

8.  ¾ Proposes to provide Rs159bn for capitalisation
of Public Sector Banks, Regional Rural Banks and other
financial institutions including NABARD
 National Housing Bank, SIDBI, NABARD, Regional Rural
Banks, Indian Stamp etc. This attempts to roll
forward the process of financial sector legislative reforms
 ¾Target for agricultural credit raised by Rs1,000bn to Rs
5,750bn in FY13
 The Government is committed to protect the financial health
of Public Sector Banks and financial institutions

9. RECAPTALISATION
 The Finance Minister announced a move to recapitalise
public sector banks through infusion of Rs 15,888 crore.
 The recapitalisation is part of the Government's
commitment to support public sector banks. These norms
will require banks to bring in larger amounts of capital.

10.  The government has proposed to extend intrest rate
subvention of 1 per cent on home loans up to Rs 1.5
milLion.
For 2012-13 banks have been directed to lend Rs. 5,750
billion to the farmers.

11.  PSBs are expected to receive majority of the Rs.159 billion
allocated for recapitalization of government financial institutions
up from Rs.60 billion budgeted in 2011-12.
 As per the budget, Rs.100 billion will be allotted to NABARD
for refinancing of RRBs to lend to small and marginal farmers
for crop loans.
We believe the RBI’S ability to cut interest rates will be
impeded by high fiscal deficit levels. This could adversely impact
investments and credit growth in 2012-2013.

12. CONCLUSION
 The banking space may also witness a spurt in growth in their
business next fiscal.
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
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

13. LAST WORDS…
 Overall the budget was neutral for the banking space
 The budget did not provide any guidance for the licensing of
new banks in the private sector
 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

14. THANKS