Budget 2024: Bank bulls hope for privatisation announcements, boost for private capex

Banking stocks have been gathering steam ahead of the Budget on hopes of some public sector banks getting privatised, and measures for boosting private capex, which in turn could drive demand for corporate loans. Besides there are also hopes that the government would infuse capital into some of the smaller state-owned banks.

Since election results, shares of SBI, Bank of Baroda, IDBI Bank, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank surged up to 15 percent, as against 6.7 percent rise in the Bank Nifty index.

Budget wishlist

Analysts at SBI have called for the consolidation of existing government-owned banks and for the government to take a stance on the divestment of PSBs.

Budget 2021 announced the privatisation of some public sector banks (PSBs) as part of a disinvestment drive aimed at raising Rs 1.75 trillion. Besides IDBI Bank, the plan included the privatisation of two PSBs and one general insurance company. However, the disinvestment process of IDBI Bank is still ongoing, and market participants will be keen to see if there are announcements regarding further equity dilution in PSBs.

ALSO READ: A look at how markets have moved before and after Budget

Given the buoyancy in the markets and the demand for PSU companies in the secondary markets, the government should be aggressive in stake sales, even considering outright strategic sales or privatisations, argued analysts at Kotak Institutional Equities.

Increased allocations towards infrastructure projects such as roads, power, urban development, and railways can also boost credit offtake and enhance the overall health of the banking sector, analysts feel.

Another industry wishlist includes adjustments to the tax on deposit interest to create a flat tax treatment. Making deposit rates more attractive could boost household financial savings and strengthen banks' balance sheets.

Recapitalisation efforts can also address concerns about non-performing assets (NPAs), provisioning, and write-offs. A special Rs 70,000 crore bank recapitalisation programme was announced in Budget 2019 to help PSBs bolster their capital reserves and enhance credit flow into the economy.

ALSO READ: What can Union Budget 2024 deliver to excite markets further?

Indian banks at pink of health: bad loans at historic low, RoE at decadal high

Currently, Indian banks are in excellent health. The industry has seen gross bad loans (NPAs) drop to a 12-year low of 2.8 percent in FY24. Net NPAs are at a historic low of 0.6 percent. Balance sheets are the strongest they have been in over a decade, and profits have rebounded sharply, quadrupling in 10 years. The return on equity (ROE) of the Indian banking sector is the highest at 15 percent since FY2011. Loan growth in the sector has increased from a decadal average of 10 percent to 15 percent over the past two years.

In the past year, shares of Axis Bank, ICICI Bank, SBI, Bank of Baroda, IDBI Bank, and Federal Bank have surged up to 58 percent, compared to a 16 percent rise in the benchmark Nifty 50 index.

If the banking reforms are implemented in the 2024 Budget, it could increase lending, mobilise deposits, and drive credit offtake, benefiting the banking sector and related stocks. Privatisation of select lenders would also help with fiscal consolidation and attract investors in the equity markets.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.