Bucks for banks
The budget has been a mixed bag for banks
It is somewhat of a mystery why the Bankex guage was the worst performer among the sectoral indices on Thursday. On the whole, the budget was a mixed bag for banks.
One positive was that the government has decided to infuseRs.14,000 crore equity into state-owned banks this fiscal year. Given that these banks would anyway have met the requirements of Basel III international norms, this is largely growth capital.
Second, the finance minister has extended the interest subvention scheme for short-term crop loans. Private banks, too, have been included this time. However, that is balanced by the targeted increase in farm credit by more than one-fifth from the current year. This is a sector with one of the highest rates of non-performing assets. At the end of fiscal 2012, bad loans in the priority sector comprised half the non-performing assets of public-sector banks, though the share of this segment in total bank credit was much lower.
Third, the decision to allow banks to sell insurance by utilizing their entire branch network will boost fee income to some extent.
However, the impact on trading income is debatable. Sure, the 10-year government security yield has increased only by seven basis points compared with the 36 basis points rise after last year’s budget. One basis point is 0.01 percentage point.
However, the Rs.6.29 trillion gross market programme has left the bond markets a bit jittery. Not only is this more than what was expected, a part of this borrowing will go to finance the buy-back of Rs.50,000 crore worth of gilts that are coming up for redemption in 2014-15. That, too, overshot market expectations.
The fact that the government didn’t use its cash balances to finance this buy-back is again a puzzle. If the price isn’t right, the government may very well not buy back this Rs.50,000 crore worth of paper.
It is also not clear whether the Rs.6.29 trillion target is conditional on this Rs.50,000 crore buy-back. In case it is not, and the fiscal deficit is not met—and that largely depends on optimistic government mathematics on non-tax revenues—the quantum of the buy-back programme would be low. Thus, a larger supply of gilts could affect bond prices, and, by extension, the profitability of banks, owing to mark-to-market depreciation.
First-time home buyers to get Rs 1 lakh additional tax break
OUR BUREAU
To encourage first-time home buyers, the Union Budget has proposed an additional Rs 1 lakh interest deduction from their gross total income on loans up to Rs 25 lakh.
Given the Rs 25 lakh loan limit for getting the additional interest deduction benefit and the high property prices in most of the metros and urban areas, first-time home buyers will be able to buy houses only on the fringes of metros/urban areas, semi-urban and rural centres.
In his Budget speech, Chidambaram proposed that a person taking a loan for his first home from a bank or a housing finance corporation (HFC) up to Rs 25 lakh from April 1, 2013 to March 31, 2014, will be entitled to an additional deduction of interest of Rs 1 lakh.
The additional deduction will be over and above Rs 1.50 lakh deduction allowed for self-occupied properties under Section 24 of the Income-Tax Act. If the limit is not exhausted, then the balance may be claimed in assessment year (AY) 2015-16.
Chidambaram hopes that the additional interest deduction benefit will promote home-ownership and give a fillip to a number of industries such as steel, cement, brick, wood, glass, and so on, besides jobs to thousands of construction workers.
PRIORITY SECTOR TAG
Banks and HFCs may be encouraged to lend to those borrowing up to Rs 25 lakh for buying a house as such loans get the priority sector lending tag. Loans to agriculture, micro and small enterprises, education, housing and weaker sections come under the priority sector lending category.
According to Reserve Bank of India, loans to individuals up to Rs 25 lakh in metropolitan centres with population above 10 lakh and Rs 15 lakh in other centres for purchase/construction of a dwelling unit per family are classified as priority sector lending.
R.V. Verma, Chairman and Managing Director, National Housing Bank, said the fiscal incentive of additional Rs 1 lakh deduction on account of interest paid by a home loan borrower will spur demand for housing.
Assuming a loan-to-value ratio (the amount of loan taken divided by the value of property) of 70 per cent and a loan of Rs 25 lakh, a home buyer, who has savings and recourse to other sources of borrowing to stump up margin, will be able to buy a house worth around Rs 36 lakh.
Select institutions can raise Rs 50,000 cr tax-free bonds
NEW DELHI, FEB. 28:
Finance Minister P. Chidambaram proposes to allow select institutions to raise tax-free bonds of up to Rs 50,000 crore next year.
This is lower than the Rs 60,000-crore tax-free bond issue that his predecessor, Pranab Mukherjee, had proposed to allow in the current fiscal (2012-13).
But, the actual amount raised through such bonds in the current fiscal will be sharply lower that what was permitted. The institutions are expected to raise Rs 25,000 crore this fiscal, stated Chidambaram.
The downward revision is partly because many bond issues have ended up being bunched in the last four months of the current fiscal – December 2012 onward – following a delay in the mandatory notifications of the Finance Ministry.
As a result, many institutions had entered the market simultaneously and were unable to raise the entire funds.
Many of these, including Indian Railway Finance Corporation (IRFC), India Infrastructure Finance Corporation (IIFCL), HUDCO, which entered the market for tax-free bonds in January, re-entered the market in February with their second tranche of bond issues.
As of now, the Finance Minister has not specified the institutions.
He said he proposed to allow some institutions to raise tax-free bonds next fiscal “strictly based on need and capacity” to raise money in the market with a limit of up to Rs 50,000 crore.
Crop loans: Private banks get interest subvention booster
- L.N. REVATHY
- A.J. VINAYAK
COIMBATORE/MANGALORE, FEB. 28:
Crop loan borrowers, who were hitherto getting credit from nationalised banks, can now turn to private banks too for support.
The Finance Minister’s announcement extending interest subvention on short-term crop loans to private banks would make crop loan rates from these banks competitive. This will also ensure them a level-playing field along with their public sector counterparts.
Interest subvention is an interest subsidy. The Government has been providing 2 per cent interest subvention on crop loans to public sector banks. This is now being extended to private banks
The old private sector banks had been seeking the banking regulator’s help to get the Finance Ministry extend the interest subvention to them for some time now.
And the move is expected to help such of those old private banks, which have their branches in close vicinity of public sector bank branches in rural areas.
Hailing the move, K.S.R. Anjaneyalu, Managing Director, Lakshmi Vilas Bank, said that it will give an impetus to private banks to participate in crop loans as, at present, there is lot of thrust for opening of rural branches.
Welcoming this, P. Jayarama Bhat, Managing Director, Karnataka Bank, said this move will help private banks to provide maximum facilities to the agriculturists on par with the PSU peers.
The Chief Executive Officer of City Union Bank, N. Kamakodi, said the extension of interest subvention to private sector banks would be a major weapon for these banks to achieve their farm loan target.
“We will now be able to achieve our agri credit target without much of an effort. Our borrowers will be the beneficiaries of the move,” said Venkatraman, Managing Director, Karur Vysya Bank.
Ajai Kumar, Chairman and Managing Director, Corporation Bank, said that now there is a level-playing field for private banks
No comments:
Post a Comment