In the goal of increasing infrastructure spending to more than 9 per cent of GDP by 2014, Harsh Bisht, the India Leader for Banking and Capital Markets Practice in PricewaterhouseCoopers, sees a major positive for banking.
The increased allocation in key infrastructure sectors will indirectly help the banks as infrastructure credit will go up, he says, during the course of a recent pre-Budget email interaction with Business Line. “Also with the Reserve Bank of India (RBI) allowing them to raise money through long-term bonds with a minimum maturity of 5 years to the extent of their exposure of residual maturity of more than 5 years to the infrastructure sector will give a leg up to infrastructure lending.”
Excerpts from the interview, in which Harsh focuses on a few key policy measures and their impact on the banking sector.
On IIFCL refinancing commercial bank loan and evolving ‘takeout financing’
This measure will give a boost to the banking sector to increase infrastructure lending. This will also provide a marginal boost to lending and help banks address the asset liability mismatch.
On recapitalisation of public sector banks in the next 2 years
The Government will provide Rs 5,000 crore to the public sector banks to beef up their capital in addition to the Rs 16,000 crore fund being provided by the World Bank. This will help the public sector banks to maintain a CAR of 12 per cent and also aggressively pursue growth.
On the announcement to merge RRBs
Government has decided to merge 196 RRBs into 85 RRBs under its amalgamation and recapitalisation of Regional Rural Banks (RRBs) initiative. The consolidation of rural banks is going to impact the banking sector in a positive way as it will improve the reach and profitability.
On scheduled commercial banks being allowed to set up off-site ATMs without prior approval
These will help banks to serve more areas with fewer resources. Already the SBI has announced that it will expand its ATMs to 25,000 by 2010.
On the action plan for providing banking facilities in under-banked/ unbanked areas
An amount of Rs 100 crore is set aside as one-time grant in-aid to ensure provision of at least one centre/ point of sales (POS) for banking services in each of the unbanked blocks. The subsidy announced in the last Budget will enable PSU banks to expand their liability mobilisation franchise and acquisition of low-cost deposits.
On the increase in interest subvention on short-term farm credit
It was announced in the Union Budget 2009-10 that interest subvention scheme for short-term crop loans up to Rs 3 lakh per farmer at the interest rate of 7 per cent per annum will be continued and that an additional subvention of 1 per cent is to be paid from this year, as incentive to those farmers who repay short-term crop loans on schedule. With this, the incentive for farm loan repayment will improve.
On withdrawal of FBT on ESOPs
Private banks will be able to reward talent and save on compliance costs.
On the phasing out of expansionary monetary measures
To stimulate the recovery process of the economic system, the RBI in its Q3 monetary policy announced a hike in the CRR of scheduled banks to 5.75 per cent from 5.0 per cent, while maintaining the repo rate and the bank rate at 4.75 per cent and 6.0 per cent, respectively. These measures are aimed at absorbing excess liquidity from the system, and inducing price stability by curtailing inflationary pressures.