Banking stocks declined as Budget 2025 raised gross market borrowings by 5.7 percent to Rs 14.8 lakh crore for FY26 to finance a fiscal deficit of 4.4 percent, up from Rs 14.1 lakh crore target set for FY25.
Shares of HDFC Bank, ICICI Bank, SBI, Bank of Baroda, PNB, Indian Bank, and Bank of Maharashtra dropped by up to 2 percent on February 1 as concerns over rising yields weighed on investor sentiment.
Manish Jain, Director – Institutional Business (Equity & FI) at Mirae Asset Capital Markets, noted that the budget did not provide any significant positive triggers for the banking sector. He highlighted that higher gross borrowings could push up bond yields, which would, in turn, impact banks’ treasury income.
When the government borrows more, it increases the supply of government bonds, leading to a rise in yields. Banks, which hold a significant portion of these bonds in their treasury portfolios, face mark-to-market (MTM) losses when bond prices fall, negatively affecting their earnings.
Additionally, increased government borrowing could tighten liquidity in the banking system, making it more expensive for banks to raise funds.
However, having said that, in pre-Budget conversation, analysts had talked about the possibility of this year's Budget nudging investors to the new income-tax regime, which has reduced exemptions. In-line to this, the finance minister announced no income taxes up to Rs 12 lakh to bolster disposable income in the hands of consumer.
With more money in their hands, people are likely to consumer more and save more, serving the dual purpose of improving retail credit growth and deposit rates for banks, analysts believe
To encourage household deposits, some analysts have also suggested taxing interest income from deposits at a lower rate. However, the finance minister did not address this.
Besides this, the Finance Minister announced FY26 capex at Rs 11.1 lakh crore, marking an increase of 0.9 percent from FY25 capex. Analysts expect the increased capex to spur investment opportunities and thus credit demand for banks.
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