Budget 2013-14: Bank recapitalisation of Rs 15,000-18,000 cr expected

By Saday Sinha

Banking Analyst, Kotak Securities

We are expecting recapitalization of PSU banks (Rs15,000 -18,000 crore) mostly in the form of tier- I capital. During FY13, GOI had budgeted Rs12,000 crore to be infused into state-owned banks including SBI.

As per the RBI estimates, Indian banking system needs Rs 5 lakh crore worth of capital by FY18 to meet new Basel-III norms. They are also of the view that government needs to pump in Rs.90,000 crore worth of capital to retain its shareholding in the PSU banks. We believe capital infusion by GOI in many PSU banks would enhance their Tier-I capital above 8% mark and would be helpful in growing their balance sheet.

We are also expecting increase in the agri lending targets for banks. The lending target was hiked from Rs.4.75 lakh crore in FY12 to Rs.5.75 lakh crore in FY13. Expecting continued focus on financial inclusion as well thrust on rural economy, the new agri lending target is likely to raised further (18%) along with maintaining the interest subvention scheme at 3% levels.

The increase in agri lending target is likely to be negative for PSU banks as this segment has been witnessing sharp rise in NPAs on back of moral hazard issues.

The lock-in period for savings with banks to qualify for tax benefits under Section 80C is likely to be reduced from five years to three years. The bankers are asking for level playing field vis-a-vis other tax saving instruments like ELSS etc. The reduction in lock in period is likely to enhance the attractiveness of tax saving term deposits of banks. We believe muted deposit growth vis-à-vis advance growth in recent times could lead to sticky FD rates, going forward and hence could compress the NIM of the banking sector. 

The industry expects the TDS limit on Interest on Bank Deposits to be increased from 10K to 50K. We expect status quo in the budget on account of revenue consideration for GOI.