BJP win in UP to trigger war on cash; banks to benefit: BofA-ML

The crackdown could entail more transaction disclosure, raise tax on cash, restrict cash holdings

Bharatiya Janata Party's (BJP's) landslide victory in the key state of Uttar Pradesh (UP) is likely to intensify the government's war against black money / cash, suggests the latest Bank of America-Merrill Lynch (BofA-ML) equity strategy report co-authored by Sanjay Mookim and Anand Kumar.

The crackdown, the report suggests, could entail more transaction disclosure, increased tax on cash, restrict cash holdings (remaining un-implemented proposal of SIT on black money).

This war on cash, BofA-ML feels, will be beneficial for banks as it would result in more financial inclusion, more fees and potential lending. Better reporting can allow private banks to compete with the public sector units (PSUs) for SME (small and medium enterprises) business, it says.

"Loan waivers (if large enough and if replicated outside of UP) can be taken negatively, especially for the PSU banks. Increased spending on irrigation, affordable housing is good for cement demand. Rural income measures (such as loan waivers, discounts) should be good for staples, cement and two-wheelers. Government measures to restrict cash can hurt sales of high value / luxury items (jewellery and high-end cars)," the report suggests.

Earlier in November 2016, the government had announced demonetisation of Rs 500 and Rs 1,000 currency notes with an aim to crack down on the black money menace. 

Reports suggest that the government's efforts to get people to disclose unaccounted cash deposited in banks after demonetisation have received a muted response. At the end of February, the Pradhan Mantri Garib Kalyan Yojana (PMGKY), also known as the Income Declaration Scheme II, saw declarations of Rs 2,500 crore. CLICK HERE FOR THE FULL STORY

Offering a final option to black money holders, the government had provided them time until March 31 to come clean on deposits of banned currency notes in banks after demonetisation.

PROPERTY DEALINGS

That apart, there could renewed focus on property dealings. BofA-ML expects the government use the new Benami Property Act to pursue undisclosed holdings, besides aggressively pursuing and prosecuting wilful loan defaulters.

"Many large issues are already through, but the government could try to push through the controversial (but very important) labour reform agenda. At least in UP, infra spending (by state government) should increase into the 2019 general elections; in order to underscore the BJP's pro-development credentials," the report says.

Loan waivers and interest free loans for small farmers, support to sugarcane producers, free education for girls, subsidised home loans increase in police force by 150,000 are some of the other measures, BofA-ML feels, the new UP government could implement.