Banking Sector in Union Budget 2017-18

The budget 2017-18 has come with a big boost for the agriculture market due to increased push on infra, boost to affordable housing, fiscal deficit target of 3.2% etc. They key provisions for the banking sector are as follows:

New Bankruptcy Bill for Financial Firms

It was announced that a bill relating to resolution of financial firms will be introduced in the Parliament. We note here that for non-financial firms, there is already an Insolvency and Bankruptcy Code in place. With the new act for financial firms in place, the comprehensiveness of the resolution system will be ensured in India.

Setting up the CERT-Fin

The finance minister announced setting up of a Computer Emergency Response Team to strengthen security of the financial sector. This will work in close coordination with all financial sector regulators and other stakeholders. Setting up of CERT-Fin at a time when India is promoting digital economy would ensure cyber security that is critical for safeguarding the integrity and stability of our financial sector.

Recapitalization of Banks

The government has provided Rs. 10000 Crore for recapitalization of banks in 2017-18 in line with the ‘Indradhanush’ roadmap. Looking at the NPA levels, this amount does not seem to be enough though.

Increased lending targets in Mudra Yojana

This this budget, the government has planned to increase the lending targets to Rs. 2.44 Lakh crore from Rs. 1.22 Lakh crore under Pradhan Mantri Mudra Yojana. This scheme has immensely contributed in providing funds to the unfunded and increasing lending targets would enable small business owners to meet their funding needs adequately.

Promotion to Digital Economy

Following are specific announcements made for promotion of digital economy:

• To promote the usage of BHIM app, the government has announced two schemes viz. Referral Bonus Scheme for individuals and a Cashback Scheme for merchants.
• Aadhar Pay, a merchant version of Aadhar Enabled Payment System will be launched.
• Government will encourage SIDBI to refinance credit institutions which provide unsecured loans, at reasonable interest rates, to borrowers based on their transaction history.
• The digital payment infrastructure and grievance handling mechanisms shall be strengthened.

Further, the government proposes to create a Payments Regulatory Board in the Reserve Bank of India by replacing the existing Board for Regulation and Supervision of Payment and Settlement Systems. Necessary amendments are proposed to this effect in the Finance Bill 2017.