Post-budget analysis- Bankex

Bankex 9,142.18 +3.66%

May 02, 15:46

Post-budget analysis

Banking

The budget has come out with two proposals which could impact the banking sector in a significant manner. Removal of TDS on interest on Corporate bonds is a positive as this would make it easier for financial institutions and banks to raise funds from the bond markets. (banks raise money via bonds to meet their capital adequacy requirement).

The impact of the other measure on loan waiver to farmers is still unclear in the absence of any budgetary allocation being made for the same. While the FM has indicated that liquidity would be provided over a period of time, it is still unclear whether the government would be compensating banks for the write off of loans or only support them by way of liquidity (i.e. by lending funds which need to be repaid back by the banks over a period of time).

Capital Market

Increase in Short Term Capital Gain Tax

Short Term Capital Gain Tax increased from 10% to 15%.

Securities Transaction Tax would not be eligible for rebate. However would be an allowable expenditure while calculating Income From Business or Profession. This is a negative as earlier, STT was reduced directly from tax while now it is being reduced from the income

Impact Table

Item Current Status Change in Budget Impact

Scheme of Debt Waiver and Debt Relief for Farmers No Such Scheme Rs. 600 bn. Worth loans to be waived off to farmers If the banks have to take the impact, it is a negative for the banks. However, the govt. has indicated at providing liquidity support. If this liquidity amounts to the govt. willing to reimburse the banks, it is a positive for the banks as some of the loans which would have gone bad would also be reimbursed by the govt. However, if such liquidity support is to be repaid by the banks to the govt., it is a negative for banks.

Waiver of TDS on Corporate Bonds Interest on Corporate Bonds was subjected to TDS No TDS on Corporate Bonds Makes corporate bonds more attractive for investors. Companies like PFC, IDFC, REC and banks would find it easier to raise money via the bond market.

Source - SBICAP Securities Limited