Budget -2019: Banking and Financial Sector Highlights

Banking and Financial Sector Highlights:

The Finance Minister Nirmala Sitharaman had made her maiden budget of the Modi 2.0 Government in the Lok Sabha on July 5, 2019, in the Parliament.

• Reforms would be taken to strengthen governance in Public Sector banks.

• Public Sector Banks (PSBs) will be provided Rs 70,000 crore to boost capital and improve credit. 

• PSBs would use technology, enabling customer of one PSB to access service across all PSBs.

• For purchase of high-rated pooled assets of financially sound Non-Banking Finance Companies (NBFCs) amounting towards Rs 1 lakh crore during 2019-20, one-time six- month partial credit guarantee to be given to PSBs. 

• Proposals for strengthening the regulatory authority of RBI over NBFCs – Debenture Redemption Reserve to be maintained.

• Proposal towards returning regulatory authority over housing finance from National Housing Bank to RBI.

In the Union Budget presented on 5^th July, Nirmala Sitharaman had said that the financial gains from cleaning up of the banking sector are evidently visible. The finance minister furthermore stated that the non-performing assets (NPAs) of PCBs have come down by Rs 1 lakh crore. She said the government had carried out consolidation in the PSBs, smoothly decreasing their number by 8.

The government has started reforms to tone up the working of PSBs. Board-approved loan policies of PSBs at present mandate tying up necessary clearances or approvals and linkages before disbursement, scrutiny of a group balance sheet as well as ring-fencing of cash flows. They would use third-party data sources for complete due diligence. This is being implemented to lessen the risk on account of misrepresentation and fraud.

Monitoring was strictly segregated from sanctioning roles in high-value loans. Moreover, specialized monitoring agencies, which combines financial and domain knowledge, were deployed for effective monitoring of loans above Rs 250 crore.

Finance Minister Nirmala Sitharaman added that the financially sound NBFCs would continue to get fundings from banks and mutual funds. The government would provide one-time 6-months partial credit guarantee for public sector banks, for the purchase of pooled assets of financially sound NBFCs. The requirement of Debenture Reservation Reserve would be done away with for NBFCs.

The Union government would infuse Rs 70,000 crore into public sector banks (PSBs) in 2019-20 towards strengthening and enhancing their lending capacity. Sitharaman also stated that the government had decided to infuse more capital into PSBs so that credit growth can be improved.

The government’s move towards vesting the Reserve Bank of India (RBI) with additional power over NBFCs as well as Housing Finance companies would streamline regulations and implementations. This is likely to provide a more uniform regulatory environment towards the lending segment. Measures have been taken through tax measures to bring deposit-taking NBFCs as well as systematically important non-deposit taking NBFCs at par with banks and other public financial institutions. Steps to support financially sound NBFCs and higher regulatory RBI monitoring would lead to driving for consolidation of NBFCs.

The government has recommended many measures to boost debt markets. Towards enhancing the sources for infrastructure financing, it suggested to set up of Credit Guarantee Enhancement Corporation and have an action plan for deepening the corporate bond repos, credit default swaps, etc.

The National Housing Bank is also the regulator of the housing finance sector. The Finance Minister Nirmala Sitharaman had proposed that the regulation to be returned to the RBI. The FM has announced Rs 100 lakh crore investments in infrastructure over the next 5 years.

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Author:

eStartIndia Team