Banks expect top notch measures and reforms in budget: Survey

Banks expect Finance Minister Arun Jaitley to announce various measures for the sector in  the upcoming Budget 2017-18, including an increase in FDI limit for public sector lenders to 49 per cent and additional capital infusion to boost credit growth, according to a report.

The FICCI-IBA Survey of Bankers, which included responses from 17 public, private as well as foreign banks representing 52 per cent of the total banking industry by asset size, said that lenders witnessed a slowdown in credit demand owing to the cash crunch post demonetisation which led to lower consumption.

However, many respondents expect credit demand to improveafter 3-6 months as economic activities are expected to pickup by that time. On the other hand, flush with liquidity, a majority of banks (82 per cent of those polled) reported a rise in theirlow cost CASA deposits during the period July-December 2016.

In fact, 53 per cent of the respondent banks reported a substantial increase in CASA deposits and attributed the sameto demonetisation, besides their own efforts to mobilise opening of savings account. Notably, in the previous survey round, only 25 per cent ofrespondents had reported a substantial increase, while 50 percent had reported a moderate increase in such deposits. Lenders believe a hike in foreign direct investment (FDI) limit for state-owned banks (from 20 per cent to 49 per cent) will help in raising further capital and thereby meeting capital requirements under Basel-III norms.

In the Budget, banks also expect the government to boost consumption demand and investment through reduction incorporate as well as personal income tax, and by providing additional deductions under section 80C and interest on home loans. With a thrust on less-cash economy, banks are also eyeing additional incentives for digital transactions, including tax benefits for customers as well as merchants. They have also urged for enhancing capital expenditure, especially for infrastructure.

Other key suggestions includemeasures to fast track NPA resolution, creation of a CentralCorporate Repository and interest payment on CRR balance. Banks also felt interest subvention for farm loans shouldbe parked with them in advance, as it takes 7-8 months forsettlement of claims, leading to interest loss.

They also want the government to announce additional tax incentives for customers on term deposits, such as reductionin lock-in period for tax saver fixed deposits, and increasein tax exemption limit for interest income from term deposits. The survey revealed that iron and steel, infrastructureand textiles continue to account for a large concentration ofnon-performing assets (NPAs).

Overall, the number of banks reporting a rise in the levelof NPAs is lower in the current round of the survey as against the preceding round. While 76 per cent of the participating banks reported a rise in the level of NPAs during July-December, 85 per cent had reported so for the precedingsix month period. Going forward, the key sectors identified by banks whichcould see a greater demand for long term credit includeinfrastructure, automobiles and food processing.