EXPECTATIONS FROM BUDGET 2011 ON BANKING SECTOR

Banks to be allowed to raise long-term funds through issue of tax-free infrastructure bonds (like IFCs)
Banking Expectation Banks to be allowed to raise longterm funds through issue of tax-free infrastructure bonds (like IFCs) llocation of ca#ital for infusion into P$% banks as in the &'(' Budget ()s(*+bn) Probabilit High Implications Positive for the sector as it would address the !" issues in infrastructure funding Positive for small P$% Banks Positive for banks01BFCs having insurance ventures 1egative for the sector as this would #ut significant #ressure on 5ields amid tight li6uidit5 Positive for the sector as it would address the !" issues in infrastructure funding

High

Increase in F,I limit for the insurance !ow sector from current &-. to -/. 2overnment3s net market borrowings High to be higher than F4((

)aising limit of refinancing from IIFC! "edium

OFFERINGS FROM BUDGET TO BANKING SECTOR

The finance minister in his Union Budget speech said the government will provide capital support to the tune of Rs 6,000 crore to public sector banks during the next fiscal to strengthen their capital base. uring the !ear "0#0$##, the government will provide a sum of Rs "0,#%& crore for infusion in public sector banks to maintain Tier ' (R)R at *+ and increase the government e,uit! in some banks to %*+. )s part of the recapitalisation exercise, the government approved infusion of Rs 6,"## crore into five banks in -une "0#0. Banks, which had got capital support from the government in the first tranche, included, Union Bank of 'ndia, Bank of .aharashtra, ' B' Bank, U(/ Bank and (entral Bank of 'ndia. The second tranche, announced earlier this month, also provided capital support for several public sector banks, including (orporation Bank, U(/ Bank, 'ndian /verseas Bank and United Bank of 'ndia .

'n addition, the finance minister also announced the recapitalisation of Regional Rural Banks 0RRBs1 )s part of financial strengthening of regional rural banks, an amount of Rs 2%0 crore was given to these banks during this !ear. Highlights of U io B!"g#t$s %llo&%tio to th# s#&to'( 3 'nterest subvention on housing loans extended b! one !ear 3 4ropose to give Rs 2000cr to 5)B)R 3 'nfra sector 6'' cap for bonds with %$!ear residual maturit! 3 To raise corpus of rural infra development fund to Rs #*000cr vs Rs #6000cr 3 iscussions on to further liberalise 6 ' polic! 3 To move to direct cash subsid! for fertilisers, kerosene 3 .ulling nutrient$based subsid! polic! for urea 3 4ropose to create an e,uit! fund of Rs #00cr for .6's 3 4ropose to create a women7s self help group with a corpus of Rs %00cr 3 6000cr capital infusion in "0##$#" for 48U banks 3 RB' to issue guidelines on banking licesnes this fiscal 3 6''7s permitted to invest in unlisted bonds 3 6'' limit in corporate bonds in infra is being raised b! additional U8 "0bn 3 9ill allow registered 6'':s to participate in 'ndian .6 industr!; 3 8<B' registered .6 can access foreign investors after fulfilling =>( norms 3 8<B' registered mutual funds to accept subscription from foreign investors 3 5R'7s are allowed to invest in mutual funds I)*%&t( 8trengthening of the banking sector through capital infusion of Rs "0,000 crore is welcome and will give boost to credit growth. 'ssue of new banking licenses has been discussed and so this will improve sentiment and provided transparenc! and strong eligibilit! norms are in place for such licenses, the banking sector will widen and deepen with more pla!ers coming in. (orpus of Rs.#00 crores for .icro finance sector e,uit! support will give a boost to the small .6's.