Budget impact: Positive for Banks, NBFCs but unchanged allocation for re-capitalisation to hit PSU banks

Positive for the sector in general as this would keep government's market borrowings in check and encourage RBI to ease rates.

Unchanged allocation has been made for re-capitalisation of banks in FY17 and over the medium-term. The Government’s language on extending further support remains constructive but delayed action could increase re-capitalisation requirement significantly. Introduction of new bankruptcy code would be positive in quicker resolution of distressed loans, however, the benefits are expected to accrue over long-term. Bank Board Bureau likely to be implemented in FY17 but little detail provided so far on the roadmap for implementation.  State owned banks remain as key instrument for achieving government’s financial inclusion plans and delivering rural credit.
All state-owned banks could get hurt.

BFSI/Exchanges – Positive

Key Announcement	Impact
Retention of Fiscal Deficit target of 3.5% for FY17	Positive for the sector in general as this would keep government's market borrowings in check and encourage RBI to ease rates
No increase in FY17 re-capitalisation committment of Rs. 25,000cr for PSU Banks	Negative for PSU Banks; more so for smaller banks having very weak capital position
Bank Board Bureau to be operationalized during FY17 and a roadmap for consolidation of PSU Banks to be spelt out	Positive for PSU Banks; especially for the smaller PSBs as they could be merged with relatively stronger large PSB
Debt Recovery Tribunals will be strengthened for speedier resolution of stressed assets	Positive for the sector, especially for PSU Banks
Government to take forward the process of transformation of IDBI Bank and would also consider the option of reducing its stake to below 50%.	Positive signaling impact for beleaguered PSU Banks
NBFCs to be eligible for deduction to the extent of 5% of income in respect of provision for bad and doubtful debts	Positive for all NBFCs; would be earnings accretive
Multiple measures and incentives announced to spur development of affordable housing	Positive for Housing Finance Cos such as DHFL, LIC HF, Repco, Can Fin, etc
For first home buyers, additional interest deduction of Rs 50,000 per annum for loans up to Rs. 35 lakh sanctioned during the next financial year provided the value of the house does not exceed Rs 50 lakh.	Positive for Housing Finance Cos in general
Credit target under Pradhan Mantri Mudra Yojana (scheme launched to benefit small/micro entrepreneurs) increased significantly to Rs. 180,000cr for FY17	Positive for Banks, NBFCs and MFIs having exposure to Micro & Small Enterprise lending
Allocations materially raised to various schemes focused on farm, rural and social sectors	Positive for NBFCs having higher exposure to rural lending  such as Mahindra Finance, Magma, SCUF, etc
A number of measures will be undertaken to facilitate deepening of corporate bond market	Positive for NBFCs; could help in reducing cost of funds in the longer term
Enabling the sponsor of an ARC to hold up to 100% stake in it and permit non-institutional investors to invest in securitization receipts	Positive for the Banking sector as a whole as ARCs can play a larger role in tackling stressed assets in the system
100% FDI permitted in ARCs through automatic route. FPIs allowed to invest up to 100% of each tranche in securities receipts issued by ARCs subject to sectoral caps	Could increase the number of ARCs in the country which can help banks in offloading stress
Foreign investment up to 49% allowed in Insurance sector via the automatic route	Positive for Reliance Capital, Max India, Bajaj Finserve, ICICI Bank, Kotak Bank, HDFC Ltd., Cholamandalam Invt, etc