2013 Budget: Bank shares wilt as interest subsidy stays; SBI down 5%

Moneycontrol Bureau

Bank shares, especially those belonging to the public sector, were hammered as the Budget proposals for farm loans is being viewed as a negative.

SBI and PNB were the major losers, with both stocks down around 5 percent each. Among other prominent losers, Axis Bank, ICICI Bank, Bank of India, Canara Bank and Bank of Baroda were down between 3-4 percent.

The Budget has proposed that the target for agricultural credit for FY14 be raised to Rs 7 lakh crore from Rs 5.75 lakh crore for FY13. Investors fear that this could increase bad loans for state-owned banks which are the main lenders to farmers.

Also, the Budget has proposed that interest subsidy on short term crop loans will be continued and that a farmer who repays the loan on time will be able to get credit at 4 percent per annum.

However, some senior bankers say, the proposed subsidy will not have any impact on their interest rate margins (NIMs). If banks are giving subsidised loans, it is made good by the government itself.

For example, if a bank prices a agriculture loan at 10% but disburses the same at 4%, the rest 6% rate of interest will be borne by the government.

“So far, the scheme has been applied to loans extended by public sector banks, RRBs and cooperative banks. I propose to extend the scheme to crop loans borrowed from private sector scheduled commercial banks in respect of loans given within the service area of the branch concerned,” the Finance Minister’s Budget Speech said.