Budget 2019 expectations: From recapitalization to mergers, here is what IMC BFSI Committee Chairman Sridhar wants for banking sector

Finance Minister Nirmala Sitharaman will be presenting her first budget on July 5. While the interim Budget was presented earlier (February 01, 2019), this one will be a full budget and comes in the wake of Prime Minister Narendra Modi’s big win in the general elections. Many are eyeing various tax rebates both in personal and corporate taxes. While sectors like agriculture, NBFCs, power, metal, startups, fintechs and others are also hoping for some good news.  
That said, the banking sector too is hoping for some developments in regards to recapitalization, stressed assets, investments and digital transformations. 

Talking to Zee Business Online, S.Sridhar who is currently the Chairman of the IMC BFSI Committee, and a banker for over four decades working in State Bank of India , Export Import Bank of India, National Housing Bank( NHB)  and Central Bank of India (CBOI), pointed out some key expectations of banking and NBFCs as well. 

Beginning with recapitalisation, Sridhar says, “Recapitalisation of PSBs in a cash neutral manner as done in the past so that the fiscal is not affected except to the extent of payment of interest on the recap bonds. Allocation of the capital to different PSBs will be to incentivize the performers, particularly those who are willing to lend.”
Going forward, Sridhar outlined few possible merger announcements as well during this budget. They are:

• Consolidation, mergers of PSBs and their recapitalization
• Policy re-merger of the larger SI-ND NBFCs with the private sector banks with a two-fold objective of giving access to NBFCs to demand deposits that can partially address their current liquidity issues in a sustained manner rather than quick fix of a liquidity line of credit from RBI
• Merger of some of the DFIs and Govt. owned NBFCs such as IFCI, IIFCL etc

Sridhar also took a note of bank deposits. He said, “Enhance deposit insurance ceiling to Rs 5 lakh or so from existing Rs 1 lakh as a prelude to reintroduce FDRI Bill in Parliament.”

Furthermore, on investments, Sridhar believes, announcement of revising certain policy and procedural rules to make existing Schemes more attractive such as InviTs, REITs, FPI investments in corporate debt etc. and operationalizing new Schemes such as Credit Enhancement Corporation, Credit Default Swaps, market making by SEs to deepen the corporate bond market.

Also, revival with modifications of old schemes for exporters such as LIBOR linked funding with the cap on bank spreads, liberalization of ECB for net forex earners this budget, Sridhar adds. 

Finally, Sridhar concluded by stating that incentives for digital payments and digital banking are also in the expectations list.