Budget 2023: Here's a look at FM Sithraman's key banking sector announcements in the past

FM Nirmala Sitharaman will table the Union Budget for 2023-24 in Parliament on February 1

On February 1, 2023, Finance Minister Nirmala Sitharaman will present the Union Budget for the fiscal year 2023-2024, her final full budget prior to general elections in 2024.

Sitharaman is only the second woman to present the union budget after Indira Gandhi.

As the economy is still recovering from the pandemic’s impact, the budget for FY 2023-24 will be monitored closely for pro-growth measures. One sector that will be closely watched is banking.

Data on credit growth and bad loans suggest that banks have mostly recovered from the pandemic blues. Still, there are challenges. A potential global recession and its spillover effect on the Indian economy could pose another test for lenders.

As Sitharaman presents her fifth union budget, Moneycontrol looks at some of the key measures for the banking sector in Sitharaman’s previous budgets and the progress of implementation.

Budget 2019-20

Recapitalisation of Public Sector Banks (PSBs) and stricter regulation of housing finance

In her first Union Budget as Finance minister, Sitharaman announced re-capitalisation of Rs 70,000 crore in PSBs to boost credit for a strong impetus to the economy. This was part of around Rs 3 lakh crore capital infusion announced between 2016-2017 and 2020-2021.

That apart, the 2019-2020 budget also aimed at infusing funds of nearly Rs 1 lakh crore into Non-Banking Financial Companies (NBFC) through state-run banks. The government said that it will provide a one- time six months' partial credit guarantee to PSBs for the first loss of up to 10 percent.

A key regulatory initiative in the budget was handing back the regulation of the housing finance sector to the Reserve Bank of India (RBI) from the National Housing Bank (NHB). This change, Sitharaman said in her budget speech, was introduced for efficient and conducive regulation of the housing sector.

Implementation progress

The government in FY 2020 infused Rs 64,612 crore in PSBs against a planned Rs 70,000 crore.

Other than the funding for revival of PSBs, the government, which had outlined funding of Rs 1 lakh crore for NBFCs, increased banks’ total exposure from Rs 7.01 lakh crore in March 2019 to Rs 8.04 lakh crore in March 2020, and further to Rs 8.17 lakh crores in June 2020.

Budget 2020-21

IDBI Bank privatization and amendments in the Banking Regulation Act

Among the major initiatives, the budget proposed to sell the government’s holding in IDBI Bank to private buyers and a larger PSB privatization plan. The government didn't disclose details.

Capital infusion

Initially, the government, in FY 2020-21, did not plan to infuse funds in PSBs but later, Rs 5,500 crore as fresh capital through non-interest-bearing special securities was infused in PSBs.

The government introduced amendments to the Banking Regulation Act for scheduled commercial banks, aimed at increasing the professionalism of banks and enabling access to capital and improving governance and oversight at banks through the Reserve Bank of India.

Also, the budget also proposed the limit for NBFCs to be eligible for debt recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security (SARFAESI) Act to be reduced from a loan size of Rs 1 crore to Rs 50 lakh.

Implementation progress

In January 2023, the government said the sale of its stake in IDBI Bank is expected to be completed by the first quarter of fiscal year 2024. Further, the government said it has received an Expression of Interest from Emirates NBD Bank and billionaire Prem Watsa-led Fairfax Group of Canada.

Also read: Emirates NBD & Prem Watsa-led Fairfax Group may join IDBI Bank race, stock gains

Budget 2021-22

Setting up of an ARC, privatization of two PSBs and an general insurance company, and infusion of Rs 20,000 crore into PSBs

The budget for the fiscal year 2021-22 saw the government set up the Asset Reconstruction Company and Asset Management Company to resolve the stressed assets problem of PSBs.

“The high level of provisioning by PSBs of their stressed assets calls for measures to clean up the bank books. An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realization,” Sitharaman said in her budget speech.

Other than this, the government also proposed to privatize two PSBs alongside an insurance company, the names of which were not disclosed in the budget.

The government worked on infusion funds for reviving PSBs and proposed to infuse Rs 20,000 crore into them.

For the fintech sector, the government planned to set up a world-class fintech hub at the Gujarat International Finance Tec-City (GIFT) in Gandhinagar, Gujarat.

Implementation progress

Data with the RBI in November 2021 showed that the performance of the ARCs has been lackluster, both in terms of ensuring recovery and revival of businesses.

“Banks and other investors could recover only about 14.29 percent of the amount owed by borrowers in respect of stressed assets sold to ARCs,” RBI said.

Of the total proposed infusion for PSBs, the government infused Rs 15,000 crore in FY 2021-22.

Budget 2022-23

Launch of E-rupee and 75 Digital Banking Units

FM Sitharaman, in her FY 2022-23 budget speech, said that scheduled commercial banks will set up 75 Digital Banking Units (DBUs) in 75 districts across the country.

“Digital banking, digital payments and fintech innovations have grown at a rapid pace in the country. Taking forward this agenda, and to mark 75 years of our independence, it is proposed to set up 75 Digital Banking Units in 75 districts of the country by Scheduled Commercial Banks,” Sitharam said in her speech.

Additionally, the government proposed to introduce a digital rupee or a Central Bank Digital Currency (CBDC) which would be issued by the RBI using blockchain and other technologies.

Other than this, the government also proposed to bring all the 150,000 post offices under the digital banking core business to enable financial inclusion.

Implementation progress

Prime Minister Narendra Modi in October 2022 launched the 75 DBUs. Out of the total 75, PSBs accounted for 48 DBUs and private sector banks installed the rest.

For CBDC, the RBI launched the pilot for wholesale and retail CBDC in November and December 2022 respectively.