You are here: Home » Opinion » Financial X-Ray
Business Standard

Private banks to gain most from Budget 2015

Lower tax payouts from FY17 to boost earnings

Malini Bhupta  |  Mumbai 

Image via Shutterstock

Much was expected from the Budget on the banking sector but given the limited fiscal space, it could not do much for the cash-strapped public sector banks (PSBs).

While state-owned banks struggle for capital, the private sector will continue to reap benefits through higher market share gains and lower tax rate in years to come..

Read our full coverage on Union Budget


Additionally, the merger of limits for foreign institutional investors and foreign direct investment, foreign limits for foreigners will increase to 74 per cent. Axis Bank and YES are expected to be big beneficiaries.

The finance minister has allocated merely Rs 7,940 crore to the cash-starved PSBs, while the capital needs of public sector lenders is in excess of $50 billion. This is a clear negative for PSBs, as several of them are in desperate need of capital. With no capital from the government, private banks are expected to garner further marketshare as demand for credit picks up. Analysts are expected to turn overweight on stronger private sector banks such as Axis Bank, ICICI Bank, HDFC Bank and Kotak Mahindra Bank.

Credit Suisse explains that continuing capital constraints on PSBs will further accelerate the market share shift to private banks and, thus, this Budget provides more reason to ‘overweight’ them relative to the PSBs. HDFC Securities believes the move is negative for Allahabad Bank, Bank of India and Central Bank.

The markets have welcomed the move to set up a Bank Board Bureau, which will be responsible for the selection of top management of public-sector banks and to find innovative ways to raise capital. However, since several legislative changes are required to implement this, the move will have little impact in the near term. The timeline of this remains uncertain, claim analysts. Even the Bankruptcy Code will help recovery of bad loans in times to come. However, that, too, is a long-term positive.

The Street is looking at earnings upgrade for the sector from FY17, when the sector's tax rates start to come off from the level. While some housing finance companies and banks enjoy certain exemptions, the net impact of corporate taxes coming down will have a beneficial impact on banks from FY17. According to JM Financial, lenders such as HDFC Bank, Axis Bank, IndusInd and YES Bank, which do not avail the deduction, will benefit the most from corporate tax rate reduction.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Mon, March 02 2015. 22:32 IST