The Union Budget is expected to bring cheer to the banking sector on at least eight counts, according to analysts.
These include increased tax breaks for writing off of non-performing assets, exclusion of GDR/ADR holdings from the overall foreign institutional investor limit, a reduction in the government's holding to 33 per cent in banks, co-operative banking sector reforms, permission for banks to float infrastructure bonds, restructuring package for development financial institutions such as IFCI and IDBI, permission to raise Tier-II capital from overseas, and recapitalisation and consolidation of weak banks.
While there are slender chances of an increase in FII holding limit in banks, analysts do expect an announcement of a second round of voluntary retirement scheme in banks, sops for restructuring packages in the steel sector, textiles and chemicals etc and increase in exposure limits to capital markets from 5 per cent of incremental deposits to 8-10 per cent.
The only negative expectation is the likelihood of reducing the housing loan interest exemption limit from current Rs 1.50 lakh to Rs 50,000 for the income tax purposes.
"If implemented, it may be marginally negative for the housing finance companies and banks," an SSKI report on pre-budget expectations says.
State Bank of India: This scrip could be in for a substantial boost if the government announces plan to keep the GDR holdings outside the FII limit.
It will also be biggest beneficiary of any government move to provide tax breaks for writing off NPAs. It may also lead the consolidation moves in the industry by a merger of its associate banks.
HDFC Ltd: It may receive a mild setback on the reported moves to reduce the tax break on housing loans but the setback may not be much if the reduction is gradual as majority of loans are up to Rs 5 lakh.
These do not get affected by this change. It will benefit from any move to allow FIs to raise infrastructure bonds, as these bonds will lower the housing company's funding costs.
Corporation Bank: The bank is expected to benefit from reduction in small savings rate, issue of infrastructure bonds and any consolidation moves in the banking industry.
Termed as the best managed PSU bank with an NPA level of just 2.3 per cent of its total assets, and strategic importance due to 27 per cent stake of LIC.
Punjab National Bank: This bank will be one of the major beneficiaries of any tax break on writing off NPAs as it has an NPA level of 5.6 per cent. Permission to issue infrastructure bonds will reduce its cost of capital.
The bank needs a capital infusion since its CAR stands at 10.9 per cent. For this reason, any plans to allow banks to issue Tier-II capital overseas may be welcome.
Oriental Bank of Commerce: It is likely to benefit from the reduction in small savings rate, issue of infrastructure bonds and any consolidation moves in the banking industry.
Among one of the best-managed PSU banks with just 3.2 per cent NPAs and strategic position due to the LIC's 10 per cent stake.
Bank of Baroda: It is expected to benefit from any move to provide tax breaks on NPA-write offs. Any move to reduce the government's holding will be a welcome step as the bank can then go ahead with its ADR plans.
The issue of infrastructure bonds will reduce the bank's cost of funds. Any move towards capital account convertibility will be beneficial since the bank has strong global operations.
Canara Bank: Any benefit for writing off NPAs will enable the bank to move towards the international benchmark of 2 per cent NPAs quickly.
Any move to reduce the government holding in banks and permission to issue infrastructure bonds will be another positive.
ICICI Bank: This bank is expected to benefit from any move to give additional tax breaks for writing off NPAs as it has a net NPA level of 4.9 per cent of the total assets.
Run-up to the Budget 2003