JOIN USBudget 2022: Banking sector may not see capital infusion this year
After the Centre's provision for setting up a ‘bad bank’ in Union Budget 2021 to alleviate the stress of bad loans on lenders, not many reforms are expected in this year's budget for the banking sector.
Over the past six years, there has been a capital influx of Rs 3.36 lakh crore, which has helped public banks rework their balance sheets by reducing net non-performing assets (NNPAs) to 2.8 per cent. This is why, for the first time in over 10 years, no capital infusion is expected for banks, according to Anil Gupta, VP at ICRA.
The NPAs figure was at 8 per cent as of March 2018, hence becoming the government's sole focus to improve the performance of public banks. While the government had mooted several mergers, including banks such as Indian Overseas Bank, these have been shelved currently due to an improvement in the balance sheets following the reforms. The earnings potential seems positive, with public banks expected to generate growth capital internally, from profits.
Major players in the sector are expecting a digital push to infrastructure for financial services from banking and payments to credit, investment, and wealth management.
Experts are also calling for regulation and implementation of electronic and video KYC onboarding of new customers. "Implementing an automated corporate verification solution powered by AI technology provides an opportunity to enhance the efficiency of the corporate onboarding process in terms of both speed and cost reduction,” Deepak Bhawnani, chief of Alea Consulting said.
Many reforms for the sector are still on hold. The Banking Laws (Amendment) Bill, 2021 has not yet been introduced in Parliament. The Bill seeks to bring down the government stake in public sector banks from 51 per cent to 26 per cent. Experts have cited discrepancies in NPA norms and resolutions for the same in the upcoming Budget session. At present, advances turn into NPAs if recovery is not made for 90 days, according to RBI norms, whereas the period is 180 under income tax regulations. This has led to litigations, with tax authorities seeking tax interest on NPA loans.
Among other recommendations, experts have called for a cut in corporate tax rate for foreign firms, making foreign bank branches wholly-owned subsidiaries and TDS relaxations.
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