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Budget2016 Banking - read breaking and trending Budget2016 news, stories, headlines. Business insider India is providing latest, handpicked stories related to the Banking category.

Budget2016 Banking - read latest and trending Budget2016 news and headlines

Against the backdrop of India’s promising growth story, compared to a flat global landscape, the Budget 2016-17 underscores the Government’s commitment to provide further impetus by way of a clear action plan for sustainable growth of India’s infrastructure – the single largest investment opportunity in the world. 
	 
	In order to address a pressing backlog of infrastructure needs amid weak private sector appetite and global headwinds, the government takes the baton in its hand. Critically, sectors such as roads, shipping, power, renewable energy, ports have seen marked increases in allocations. 
	 
	Additionally, in a bid to encourage private sector participation, provisions for renegotiation of PPP contracts have been spelt out and a Public Utility Resolution of Disputes Bill is also sought to be passed to solve problems in infrastructure contracts, PPP and public utilities. 
	 
	By continuing to maintain the delicate balance between the priorities for India and Bharat, Budget has created growth impulses for infrastructure sector and farmers alike. India’s extensive infrastructure needs are well known. Decades of underinvestment have created deficits in critical areas such roads, highways and railways. A combined budgetary allocation of Rs2.8 lakh crores for Roads and Railways will have an extremely positive impact on ensuring sustainable development of India’s infrastructure and encourage private participation. 
	 
	In particular, along with Pradhan Mantri Gram Sadak Yojana, the Road Sector continues to be a focus sector, with a dedicated budget allocation of Rs97,000 crores for development of roads and highways. 85% of projects are now back on track. Increase of more than 30% over planned expenditure, with a target to build 10,000 km of National Highways, has created positive sentiments. In addition, upgradation of 50,000 km of State Highways to National Highways will ensure development of roads in line with NHDP program. 
	 
	Sensing the financing needs of NHAI, the FM has also announced issuance of Rs. 15,000 Crores worth of tax free bonds. The ambitious yet achievable target of building 30 km of road per day will be instrumental in bridging the developmental gap since 2012-14 during which only 5,100 Km of road projects were awarded. 
	 
	Further, abolition of permit-raj and amendments in the Motor vehicles Act to bring in the Private Sector will not only help in more efficient public transport facilities but also drive job creation, entrepreneurship and start ups in the sector as well as push the 55 State Transport Undertakings (STUs) to achieve operational excellence. 
	 
	The step up in budgetary support, coupled with a clearly laid out road map for all round development, supported by programs such as setting up of NHDP, Bharatmala Pariyojna, Special Accelerated Road Development Program in the North East, will send positive signals to investor and lenders who have been cautious in their approach to the infrastructure sector. 
	 
	Infrastructure: The game changer 
	 
	Quality physical infrastructure is vital for business generation and youth employment in an emerging economy such as ours and provides deep impetus to establish industries and nurture the entrepreneurial zeal of a high growth economy. 
	 
	However, multiplicity of departments – roads and highways, railway, waterways and aviation, creates a systemic imbalance, hampering growth and implementation. I strongly believe that establishing a Unified Infrastructure Regulatory Authority with a clear mandate to formulate and implement development strategies in sync with dynamic economic environment is crucial to improve logistics and ensure balanced, long-term development, build consensus with all stakeholder and ensure effective Center-State relationship.

Yes
Bank’s Rana Kapoor feels budget 2016 drives economic growth through
infrastructural development

Going against the expectations, Finance Minister Arun Jaitley did not allocate more than the proposed Rs 25, 000 crore towards public sector bank recapitalization. Given the structural issues India is facing with respect to public sector banks (that are unlikely to go away with more capitalization), it appears prudent to stay the course of planned recapitalization than throw more money at the problem in the failed hope that that will return them to health. 
 
The Finance Minister appears to also have avoided (at least for now) the siren call of a sovereign “Bad Bank” (that this author argue against on Business Insider before the Budget) and focused on strengthening the regulatory architecture of asset reconstruction companies. The Finance Minister proposed that the sponsors of asset reconstruction companies be permitted to invest up to 100 % in an ARC. 
 
Constraints on raising capital are one of the reasons hampering the asset reconstruction companies from pursuing opportunities in the distressed loan market vigorously. It remains to be seen if the RBI takes cue from these proposals and rolls back other constraining regulations for asset reconstruction companies. As the author has previously argued, one such regulation requires them to mandatorily furnish 15 % off the purchase consideration in cash; given that loans are difficult to value, such mandates foreclose the option of plugging “valuation mismatches” using security receipts. 
 
The Finance Minister also stated that the government is considering the option of reducing its stake to less than 50% in IDBI Bank. If implemented, this will be giant first step towards bank privatization generally. The Bank Board Bureau (BBB) (that is proposed to commence operations from April 1, 2016) is established to engage with the Board of Directors of all public sector banks to formulate appropriate strategies for their growth and development. Ideally, BBB catalyzed efficiencies should pave the way for privatization of public sector banks down the road. 
 
Finally, the decision to establish an electronic platform for repo market in corporate bonds will incentivize Institutional investors to invest in corporate bonds thus inducing much-needed liquidity. 
 
(The article is authored by Mandar Kagade, Policy Analyst with the Bharti Institute of Public Policy (“Bharti”) at the Indian School Of Business) 
 
(Image: Indiatimes)

FM Jaitley’s long term vision for banks is a welcome move

The Economic Survey 2016 pointed out the increasing Non Performing Assets (NPAs), which have reduced the banking sector’s capacity to lend. 
 
Sluggish growth and increasing indebtedness in some sectors of the economy have impacted the assets quality of banks and this is a cause of concern. 
 
Liquidity conditions were generally tight during the first quarter of 2015-16, mainly due to slow government spending in the beginning of the year. 
 
After easing conditions during the Q2, the third quarter saw tightened liquidity conditions. 
 
The Economic Survey 16 stated that during the current financial year, year on year growth in gross bank credit outstanding has remained around 10%. 
 
The year on year growth in time deposits fell to 10.6% in December 2016 due to household saving were channelized to other areas like gold and real estate. 
 
The gross bank credit to the services sector grew at sub 7% in May – November 2015 though it increased to 9.2% in December 2015. 
In agriculture sector, there was a downturn from November 2014. 
 
The survey says that the slowdown in growth in the balance sheets of banks witnessed since 2011-12 continued in 2015-16. 
 
The estimated capital requirement is likely to be about Rs 1.8 trillion by 2018-19. Out of this, the government of India proposes to make Rs 70,000 crore available out of budgetary allocations during the current and succeeding years. 
 
Economic Survey 2015-16 mentions that the number of new basic saving bank deposit accounts rose considerably during the year on account of the government’s initiative under Pradhan Mantri Jan Dhan Yojna. 
 
The number of such account increased to 44.1 crore for the period ending September 2015 and total number of banking outlets went up to 5.67 lakhs. 
 
The Bombay Stock Exchange declined by 8.5% (Up to January 5, 2016) over March 2015, mainly on account of turmoil in Global Equity Markets. 
 
The net investment by Foreign Institutional Investors/FPIs in the Indian market has been Rs 63,663 crore in 2015 as compared to Rs 2,56,213 crore in 2014.

Banks are in deep trouble!

The mainstream business media is abuzz with reports that Finance Minister Arun Jaitley will announce the proposal for establishing a sovereign asset reconstruction company, popularly known as “bad bank”, to acquire the NPAs from public sector banks, in the upcoming Union Budget 2016-17 on February 29. 
 
As it is widely known, public sector banks have been suffering from a spurt of NPAs for a while now with the third quarter of FY16 witnessing a sharp rise as fallout from stress in sectors like steel, power and infrastructure. 
 
Before we proceed. a quick word about how asset reconstruction companies function is in order; an asset reconstruction companies, or a “bad bank” essentially purchases all the NPA loans from a bank against cash at the NPV of the loans. By thus purchasing all the NPAs on the balance sheet, it frees up capital that the banks have to otherwise “lock in” to provision against the NPAs and the banks may use the extra capital to create more loans to corporates and consumers, and thus giving a fillip to the economy. 
 
The “bad bank”, in turn, resolves the NPAs on its balance sheet by taking several steps against the borrower (these may inter alia, include filing a suit, foreclose the debt and the like). 
 
So what’s not to like? Let the bad bank take care of the bad loans and the good banks get back to business again; sounds like a plan. Except that it’s not and that too for several reasons. 
 
Firstly, India’s banking sector is a peculiar mix of state owned banks (public sector banks or “PSBs”) and private sector banks. As the shareholder in public sector banks, the government (and therefore the tax payer in substance) is already underwriting the risk for public sector banks. 
 
Since the government will in practice almost never go bankrupt, the cost of capital demanded by investors in PSBs is always low relative to their true cost. The rating agencies too rate their debt taking into account the “taxpayer put”. 
 
This perpetual taxpayer put induces the risk of what economists call, moral hazard among the PSBs and their management; in other words, knowing beforehand that the government will always fund them (when the capital markets won’t), PSBs were likely less than diligent in loan appraisals. Indeed, the government has already decided to recapitalize the PSBs over a three year period pursuant to the “Indradhanush” scheme. 
 
In the light of this already existing capital subsidy, a publicly funded asset reconstruction company will aggravate the moral hazard already entrenched in PSB management. Instead of injecting market discipline and making prudent investments, knowing that they can offload debt to this sovereign bad bank will create a further disincentive to be diligent. And that would run contrary to one of the principal lessons of the financial crisis of 2008; the prevention or avoidance of moral hazard in banking. 
 
Secondly, to the extent a clean-up of the balance sheet is necessary, India already has established a regulated asset reconstruction industry. Unlike the proposed sovereign-backed asset reconstruction company, these asset reconstruction companies are privately funded and therefore will only buy assets from the PSBs at their true cost, inflicting losses and preventing moral hazard (and thus inject market discipline among PSBs). 
 
The government should push the management to utilize this route. Admittedly, certain regulatory restrictions and restrictions on raising capital are limiting emergence of a thriving market in bad loans; but the solution to the issue lies in engaging the stakeholders and correct the regulatory architecture all banks may utilize. (Illustratively, the RBI recently enacted a rule that requires asset reconstruction companies to bring not less than 15 % of the purchase consideration in cash. This rule foreclosed the option of bridging “valuation gaps” through security receipts and froze the markets). 
 
Instead of proposing a sovereign “bad bank”, the Union Budget-2016 should focus on policies aimed at enabling emergence of a thriving distressed debt trading and resolution market. Finally, the Budget should complement the capital infusions pursuant to “Indradhanush” by augmenting human capital at PSBs inter alia, by allocating moneys for hiring top talent at directorial and executive positions. 
 
Finally, the government should privatize control over PSBs consistent with Nayak Committee recommendations as a step towards complete privatization. 
 
To conclude; it’s easy to enact a law for a sovereign “bad bank” and ease the short term pain of PSBs and let the imprudent lending continue to hurt the economy in the long run. But ensuring long term robustness in banking requires the Finance Minister to be the Ulysses and tie himself to the mast so he may resist these siren calls of doom. 
 
(The article is authored by Mandar Kagade, policy analyst with the Bharti Institute of Public Policy at the Indian School Of Business)

Budget 2016: Here’s why a sovereign ‘bad bank’ will be a bad idea

With the world economy heading towards a possible slowdown and India being one of the major economies having any real chances of growing at a faster rate, everyone will be looking forward to how this year’s Budget will address the issue of stagnating private investment in India. With proper fiscal incentives in place, the insurance industry (being one of the major sources of long-term funds for the economy) can play a bigger role in pushing up public and private-sector investment and thus, help in achieving government’s goal of putting Indian economy on a high-speed track. 
	 
	Following is my wish list for 2016 Union Budget. 
	 
	A uniform KYC 
	 
	Unlike e-policy holders, offline insurance buyers have to undergo a lot of paperwork, as part of KYC procedures. In addition to this, insurers usually call for multiple KYCs for different policies and this act as deterrent for new investors to invest in insurance policies. Government must consider giving a strong push to uniform KYC and e-claims, irrespective of whether the policy is purchased online or offline. This would make the process of buying insurance policies and filing claims easier. 
	 
	Revise tax exemptions 
	 
	At present, premium of up to Rs.25000 paid for health insurance plans qualify for deduction under Section 80D. This limit rests at Rs.30000 in case of senior citizens. Tax exemption under health insurance plan should be revised as the current incentive is inadequate, taking into consideration the rising healthcare cost. Just to give you an example, a 55yr old sole earner in a family of 4 would easily spend upwards of Rs.30000 per annum for Rs.10lacs sum insured. Also, the current exemption does not provide incentives for those who buy long term health insurance plan. Increasing the income tax exemption limit in health insurance will encourage people to buy health policies with larger covers, and for longer tenure. 
	 
	Tax exemption for home insurance 
	 
	While catastrophic destruction caused by natural calamities such as Chennai floods and Nepal earthquake influenced people to think about getting their home and property insured, people continue to remain hesitant about getting their property insured and hence, end up procrastinating it. Home insurance enables people to deal with huge financial losses that they would otherwise incur in case of natural disasters. Introducing tax exemptions on house insurance premiums would encourage homeowners to insure their homes. 
	 
	Make term insurance attractive 
	 
	At present, term insurance products constitute just 0.4% of the total insurance products sold in India. Distributors find term insurance products unattractive as their payouts, as per current regulation, is just above zero percent. The cap on the payouts needs to be relaxed to make selling term insurance attractive for the distributors. This would go a long way in increasing the average life insurance coverage of Indians. 
	 
	To sum up, as low insurance penetration is a problem area, the FM should increase tax incentives to encourage people to buy adequate insurance cover. This will also help the insurance industry to raise more resources for financing government’s physical and social infrastructure programs. 
	 
	The article is authored by Alok Bansal, Co-founder and CFO of online insurance comparision portal Policybazaar.com.

Mr FM! This is what the insurance industry want from Budget 2016

With GDP growth of 7.3%, in 2014-15, India’s economy is firmly on the path of economic revival. India is the brightest spot on the global map, with GDP Growth expected to rise to 7.9% in 2017-18. India is well positioned to withstand near-term global headwinds and the high volatility in global financial markets due to reduced external vulnerabilities, a strengthening domestic business and investment cycle, and a supportive policy environment. Most recently, even the IMF has maintained its GDP growth projection of 7.3% in 2015-16 and 7.5% in 2016-17, even as it cut projections for overall global output. 
	 
	The transition from a state of crisis of confidence in 2013 to a bright spot in 2015 is not by chance but by design. The past few months in particular, have seen even renewed energy from the Government to enforce key reforms, and revive industrial sentiment. Going forward, the upcoming Budget Session of Parliament will be very important in the current scheme of things, to create short &amp; medium term wins. 
	 
	Boosting Savings in India 
	 
	Most importantly, there is a need to boost savings in the economy to enhance the inherent economic strength of the financial sector. It will be worthwhile to adopt of the structural GEAR (Growth, Efficiency, Attractiveness, Reach) approach, as elaborated below, to augment the savings rate in the economy: 
	 
	Enhance economic growth to increase per capita incomes: Towards this end, it will be important to increase disposable incomes by relaxing personal income tax slabs to INR 5 lakh from the current level of INR 2.5 lakh – this could be a one-time correction and this could thereafter be linked to inflation and reviewed every three years. This will provide an immediate thrust to household incomes, part of which will be diverted to financial savings. 
	 
	Focus on efficiency in financial transactions: Use of plastic currency and e-transactions (via internet/mobile) will not only improve ease of transactions but also enhance saving propensity among citizens. Every 1% reduction in currency in circulation is likely to add 0.4% to the savings rate. More importantly, this could also help in curbing the flow of black money. 
	 
	Make financial savings attractive: Financial savings must be promoted by improving tax incentives. One of the enabling measures for this will be to enhance 80C limits to INR 3,00,000 from current level of INR 1,50,000 – this will also deepen the mutual fund and equity markets. Secondly there is a need to increase inflation adjusted post tax returns for bank deposits, by reducing lock in period eligible for tax rebate to 1 year from 5 years; and enhancing the threshold for mandatory TDS on interest income to INR 50,000 a year from the current level of INR 10,000. It will also be useful to roll back TDS on Recurring Deposits to encourage wider adoption, as this is a product that promotes the habit of regular saving. Further, pension products like EPF and PPF continue to enjoy ‘EEE’ tax status whereas the National Pension Scheme (NPS) are subject to ‘EET’, which involves tax obligation at the withdrawal stage. To create a level playing field and prevent cannibalization, NPS needs to get ‘EEE’ tax status to make it more attractive. 
	 
	Expand financial reach: The Government could consider converting India Post into Postal Bank of India, a full-fledged Payments and SAVINGS bank, to leverage its rural penetration for greater financial inclusion. Internationally, there are a few countries which have tapped the postal institution for extending financial inclusion. 
	 
	Next Generation of Reforms 
	 
	For 2016, I believe India’s top priorities should include passage of GST, rationalizing direct taxes further, tax sops for Start Ups and introducing key structural reforms in terms of real estate, labor and MSMEs. The farm sector too needs significant focus on irrigation and technological support. 
	 
	With the global economy expected to remain mired in volatility in 2016, strengthening the domestic economy will also help to ring-fence India against global headwinds. While micro measures will help, the Banking &amp; Finance sector also needs the next generation of reforms. I am hopeful that economic clairvoyance will triumph over political myopia in 2016 and GST will see the light of the day. The Bankruptcy Bill will also turn out to be a game changer for spurring economic activity and confidence. This Budget presents a Golden Chance to usher in Fiscal Measures to make 2016 India’s Year. 
	 
	The article has been authored by Rana Kapoor, managing director and CEO of YES Bank and chairman of YES Institute.

Here’s what one of the largest private bank, YES Bank has to say about Budget 2016

Prime Minister Narendra Modi’s pet project, Housing For All By 2022, has pumped the housing finance sector, which otherwise has been going through a lean phase for the past couple of years. And with a set deadline for the initiative, the industry is expecting the government to further support the policy reforms that were announced in the previous budget. BI India lists down the expectations of the industry from Budget 2016. 
	 
	REITs 
	 
	The Housing finance sector is expecting the government to make REITs more attractive, which in turn would help boost the sale in the realty market, thus helping the housing finance sector. Since, projects under REITs are already completed and ready for sale, an average home buyer would prefer to buy via this option. The industry player in this sector, thus hope that further clarity in REITs would help the housing finance sector in clocking in better sales. 
	 
	Simplify procedures 
	 
	The lengthy procedures and the apparent delays in approvals is one major setback for the housing sector and thus the industry expects the Modi government to simplify the approval procedures. In fact, our conversations with the industry players revealed that they have suggested single window clearances for new projects. 
	 
	Boost investments in realty sector 
	 
	The growth of housing finance (HF) sector relies completely on the growth real estate sector. Hence, investments in the realty sector will automatically boost the HF sector. “We recommend exploring PPPs as an alternative additional source of funding to infuse higher funding in urban housing. It will also facilitate introduction of private sector technology and innovation in providing better public services through improved operational efficiency,” said Harshil Mehta, CEO of DFHL. 
	 
	Refine Priority Sector Lending 
	 
	Currently, the government allows only housing loans below Rs 25 lakh as PSL, which the industry players feel needs to be redefined. “DHFL is of the view that limit of the PSL should be increased to Rs 35 lakh and the annual increase be automatically pegged to the WPI will empower customers and incentivize HFCs to lend to affordable housing projects thereby giving boost to the real estate sector,” he added. 
	 
	
		Regulatory reforms 
		 
		"Modification in FSI / FAR / density norms especially from EWS / LIG housing perspective has been hanging fire for long time. Optimal FSI / FAR / density norms will help in reducing costs per unit and increase the economic viability of Affordable Housing. FSI can also serve as a cashless subsidy, the benefits of which can then be passed on to end users/customers. Rental housing should also be promoted to meet the grand vision of Housing for All by 2022," noted Mehta

Know what the housing finance sector wants from Union Budget 2016

Ahead of Union Budget 2016, Finance Minister Arun Jaitley hinted at major banking reforms in the forthcoming Budget and assured foreign investors that retrospective taxation will be a thing of the past. 

	With the Budget is scheduled for February 29, he did not elaborate on what the shape of the banking reforms will be.<o:p></o:p>

	“We have two tax disputes with large corporates. This we are working to settle amicably,” he said while speaking at the Asia Business Forum 2016 as part of ‘Make in India’ week in Mumbai on Sunday.<o:p></o:p>

	He guaranteed that legacy issues in the tax system will be sorted out.<o:p></o:p>

	The government, according to Jaitley, would maintain an arm’s length in the functioning of banks but will not divest completely from public sector banks.<o:p></o:p>

	“The country has not reached a stage where the government can completely exit its holding in the 27 public sector banks,” he said. <o:p></o:p>

	To professionalise the operations of state-run banks, which control over 70 per cent of the industry, he said that the government has already committed to bringing down its holding up to 51 per cent, he said.<o:p></o:p>

	While talking about the passage of the Goods and Services Tax in the Rajya Sabha, Jaitley said he hopes to “negotiate through” in the coming days. 
	 
	On divestment, the Finance Minister blamed the choppy market for not being able to meet the target.<o:p></o:p>

	The windfall gains from declining oil prices have been used to create infrastructure, he said. However, there is a need to focus on investing in rural roads, electrification and irrigation to push up rural demand, which has been hit by two successive droughts, he added.<o:p></o:p>

	Advising States to reconsider the issue of higher taxes in the tourism sector, Jaitley said the Centre has offered visa-on-arrival facility to 125 countries and this has already resulted in a quantum jump of foreign visitors. 
	 
	Image credit: Indiatimes<o:p></o:p>

Budget 2016: Arun Jaitley hints at big banking reforms, but no full divestment from PSBs

RBI Governor Raghuram Rajan spelled out his reasons for not slashing the repo rate and CRR. However, he kept the ball rolling in Finance Minister Arun Jaitley’s court, saying the Union budget will have to do the real reformatory easing. 
 
While announcing the bi-monthly policy, Rajan sounded off alarm bells, hinting that the growth trajectory will not see much momentum before FY17. As we have just begun with the year, this means that momentum in growth will be seen only by the end of two years. 
 
Rajan said the current pace of growth did not meet expectations over the medium term, adding the RBI was being ‘accommodative’. 
 
Here are few factors that RBI hinted at: 
 
1. Rajan said the Union Budget, which will be announced on February 29, should announce structural reforms and keep a tight control on spending. He added that the government will have to announce measures to ensure that the inflation remains on the set path of 5% by the end of 2016-17. 
 
2. Don’t expect any further cuts in tax slabs and more subsidies from the Budget 2016. One of the primary ways in which the government can control its expenditures is by being wise about the pay panel recommendations. “How the government implements a planned 24 percent pay hike in salaries and pensions for some 10 million current and former government employees will also be key in determining the path of inflation,” said Rajan. 
 
3. The RBI is also hoping for good monsoons this year as this is also one of the key factors for strengthening growth. After two consecutive years of bad monsoons, Rajan said if the country receives good monsoon, it will increase trade and household incomes. However, an El Nino effect may be seen. 
 
4. While there are rounds of liquidity crunch in the banking system, Rajan said the central bank will use all methods possible to pump in money in the bank. Rajan ditched the perception of a liquidity crunch. The RBI governor has been pushing banks to clear their bad debts in order to have more money to loan, which will lead to propel investments and lead to clearing of stalled infrastructure projects. 
 
5. There has to be a revival in private investment for a higher growth trajectory and it is needed for the government to pay heed to the fiscal deficit. 
 
(Image: Indiatimes)

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