Union Budget-2015-16 is a forward looking Pro-poor, Pro-agriculture and Pro-infrastructure budget.
Union Budget 2015 aims at higher trajectory of growth while balancing the fiscal deficit. The primary importance has been laid to revive investment and ensuring the benefits of schemes reached the right people.
The Budget has focused on areas such as rural development, Make in India, Skill Development, financial inclusion and revival of Manufacturing sector. Public investments have been given precedence to kick start the capex cycle. The Budget is pragmatic with expenditure switching towards more productive areas to boost growth.
The fiscal consolidation roadmap announced by the FM for financial year 2015-16 is 3.9 per cent of the gross domestic product, 3.5 per cent in 2016-17 and 3 per cent in 2017-18 is in tune with the higher investment envisaged. Gross borrowings are at around Rs 6.3 lakh crore and the net borrowing at Rs.4.56 lakh crore remains more or less the same as the current year. In 2015-16, there is no strain on the government borrowing programme, so we expect the bond market to not have much of an impact.
In order to improve the Governance of Public Sector banks, the Government intends to set up an autonomous bank Board Bureau. The Bureau will search and select heads of Public Sector banks and help them in developing differentiated strategies and capital raising plans through innovative financial methods and instruments.
This would be an interim step towards establishing a holding and investment Company for Banks. This is in line with recommendations made in the Nayak Committee wherein the government stake in the banks be transferred to a separate bank investment company which will be professionally managed and be able to raise resources.
The holding company concept has been successfully implemented elsewhere in the world. One good example described in the report is the UK Financial Investments, which was set up in November 2008 after the financial crisis, exclusively to manage HM Treasury's shareholdings in stressed banks that subscribed to its recapitalisation fund. It has HM Treasury as its sole shareholder. It is managed by its professional board and is accountable to the Chancellor of the Exchequer and - through the Chancellor - to Parliament.
The budget proposes increase in farm credit to Rs.8.5 lakh crore and has allocated Rs.95000 crore towards RIDF which is welcome step leading to pick up in the agri- lending of the banks.
To create a Micro Units Development Refinance Agency, (MUDRA) Bank with a corpus of Rs 20,000 crore and credit guarantee corpus of Rs 3,000 crore. MUDRA Bank will refinance institution through a Pradhan Mantri Mudra Yojana. The lending priority will be given to SC/ST enterprises. As per FM, development has to generate inclusive growth, and while large corporate and business entities have a role to play, it has to be complemented by informal sector enterprises that generate maximum employment.
These measures will greatly increase the confidence of our young educated and skilled workers who are able to become the first generation enterprises, and existing small businesses will be able to expand their activities. For the banks this is an impetus to increase their lending to this segment on the availability of a fall back mechanism. Similarly, there is a proposal to setting up of cutting the delays in receivables in MSMEs which will lead to a hassle free production by this sector.
The Comprehensive Bankruptcy Code of global standards to be brought in fiscal 2015-16 and extension of SARFAESI act for NBFC will dissuade the willful defaulters and the enhance the confidence of the lending institutions. This would also take the financial sector at par with the international standards.
The proposal to have a Postal network with 1,54,000 points of presence spread across villages to be used for increasing access of the people to the formal financial system will complement the RBI’s proposal for deepening of the financial sector by setting up of payment and small banks. This would intensify the level of healthy competition leading to cost efficient delivery of payments and settlement services while meeting the needs of the customers even in the hinterland.
Overall, the Budget is likely to have a significant positive impact on the banking industry by focusing on financial inclusion, boosting credit growth, discouraging willful defaulters, supporting capital base of banks and improving the governance.
