FM has little to offer to financial sector

Finance Minister Pranab Mukherjee presented the broad contours of the government’s strategy for banks though it was limited to public sector players. But there were few concrete steps to strengthen the financial sector that he dubbed as the life blood of an economy.

There was merely a statement of intent on capital infusion in public sector banks and insurance companies – but no allocation.

Market players said that there were more misses – such as clarity on the pension and insurance Bills – than new measures in the budget.

Over the last six months, the government has repeatedly spoken of capital infusion in 17-18 public sector banks but has failed to provide details as it was negotiating a loan with the World Bank.

Banks such as IDBI Bank, Vijaya Bank and Bank of Maharashtra were expected to be taken up for next round of recapitalisation but the government is yet to finalise the details.

“The government has already provided funds to some banks and we have also been assured (of funding), said Bank of Maharashtra Executive Director M G Sanghvi. The Pune-headquartered bank has sought Rs 1,500 crore over three years.

Similarly, the finance minister spoke of financial inclusion, but did little beyond setting a up a sub-committee of the State Level Bankers’ Committee that would list out the un-banked or under-banked districts and prepare an action plan to cover all regions of the country over a three-year period. In terms of allocation, he earmarked Rs 100 crore as a one-time grant for providing at least one centre or point of sales in each of the unbanked blocks in the country.

Budgetary allocation of Rs 1,542 crore have been made for purchasing the shares held by the Reserve Bank of India in National Bank for Agriculture and Rural Development and National Housing Bank. In addition, Mukherjee announced an allocation of Rs 2,000 crore to NHB from the shortfall in the priority sector lending of commercial banks.

The funds are expected to boost the resource base of NHB for refinance operations in the rural housing sector. Similarly, Rs 4,000 crore has been provided to Small Industries Development Bank of India for facilitating lending to small and medium enterprises.

But Mukherjee has used the interest subvention route across sectors – from farm loans to exports to low-cost housing. The move is also the result of RBI's message to the government that as the majority owner of public sector banks it could implement social sector schemes through them, as long as there was a budgetary allocation.

So, farmers, who were entitled to 2 per cent subvention would get an additional one per cent subsidy if they repaid on time. This is expected to cost Rs 2,011 crore this year, as against Rs 2,600 crore last year though Mukherjee said that the one per cent additional subvention itself would cost Rs 411 crore extra.

Similarly, there was an interest subsidy for poor households for loans up to Rs 1 lakh under the National Rural Livelihood Mission. Also, students from economically weaker sections would get full interest subsidy on pursue approved courses.