The finance budget for 2019 was largely targeted towards the agrarian and the MSME sections of the society. Though the volume of institutional credit to the agriculture segment has been increased by 10 per cent to Rs 11 lakh crore for FY19, we do not see much pressure on banks as corporate credit is yet to pick up in a meaningful manner.
Even in a situation, corporate credit picks up; the proposal to allow strong regional rural banks to raise capital from the market can partly support credit flow to the agriculture sector. We expect the proposal to maintain the minimum support price for crops at 1.5 times the production cost would augur well for the rural incomes and spending. This shall benefit the banks through improved credit offtake as well as improvement in asset quality in agriculture segment. Proposals to review the refinancing norms for NBFCs under MUDRA and receivable discounting by PSBs will improve the credit supply to MSMEs and support the credit growth of banks and NBFCs.
The Budget has also maintained its focus on the agenda ‘Housing for All’ by 2022 with a sizeable budgetary allocation of Rs 27,414 crore, which is likely to maintain the growth momentum in the affordable housing sector. Further, setting up of affordable housing fund is likely to increase the funding options for lenders at a lower cost which in turn is likely to improve affordability for end borrowers.
With banks required to focus on the credit requirements of agriculture, MSME and another priority-sector lending, the need for corporate credit is likely to be addressed through the proposed regulatory amendments for various institutions by lowering the minimum credit rating for investments into corporate bonds.
While the Government has focused on enhancing the credit supply to various sections, limiting the increase in exempted interest income on bank and postal deposits for senior citizens only continues to put bank deposits at a competitive disadvantage with other financial instruments in terms of tax efficiency.
A parity in taxation on interest on bank deposits and other segments may have supported banks to improve their deposit base at competitive costs at a time when they are required to enhance the credit supply to various weaker sections of the economy. The author is senior vice-president at ICRA, a credit-rating agency
Government seeks vibrant bond market
Proposal to have corporates raise at least 25 per cent of their funding requirements through debt capital markets reiterates the centre’s stand on seeking a dynamic bond market. The measure will widen issuer participation while providing investment options to investors.