IMPACT ON BANKING SECTOR..

The banking sector is highly interrelated with the economy of the country. The GDP growth is estimated at 7.6 per cent for FY13 which gives us a hint that the Indian economy is expected to recover and be back on the growth track in FY13. With this development the banking space may also witness a spurt in growth in their business next fiscal. However, the Union Budget 2012-13 has offered both positives and negatives for the sector.

1:The budget has proposed to provide a sum of Rs 15,888 crore of capitalization for the public sector banks, regional rural banks and other financial institutions, including NABARD. Last year the budget had estimated capital infusion of Rs 6,000 crore in PSBs but the real scenario is that the government is infusing capital of more than Rs 16,000 crore during this financial year. The estimate for this year could be considered as appropriate and therefore this could be a positive factor for the public sector banks as the capital infusion would help bank’s in maintaining their minimum tier - I capital, thereby will build confidence in investors about the financial quality.

2:The budget has proposal to extend the scheme of capitalization of weak RRBs by another 2 years to enable States to contribute their share and to allocate Rs 10,000 crore to National Bank for Agriculture and Rural Development for refinancing the regional rural banks (RRBs). The proposal to extend the scheme of capitalization of weak RRBs is a welcome move as setting up of a short-term RRB credit refinance fund would enhance the capacity of RRBs to disburse short term crop loans to the small and marginal farmers.

3:Finance Minister pegged fiscal deficit be grow at 5.1 per cent of the GDP for FY13. For financing this deficit the government will create a market borrowing of Rs 5,75,000 crore which is higher by Rs 1,00,000 crore as compared to last year. The higher market borrowings will further have an upward pressure on the interest rates. The RBI which wishes to cut down the rate may again take a pause in the near future.

Thus, overall the budget was neutral for the banking space. The budget remained silent on the licensing of new banks in the private sector issue. As for the issues of priority sector lending and on creating a public financial holding company for the banks, the budget has created no impact on an immediate basis. 

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