The Budget proposed the sale of the government's balance holding in IDBI Bank but didn't announce any recapitalisation of public sector banks, instead saying that they will be encouraged to approach the capital market to raise additional money.
Already, the government has seen lender consolidation and capital infusion of Rs 3.5 trillion into public sector banks.
Karthik Srinivasan, SVP and group head, financial sector ratings, ICRA Ltd, said, "We expect most of the PSBs to turn profitable in 2020-21 and raise capital from the markets for their growth requirements.''
For MSMEs, finance minister Nirmala Sitharaman introduced a plan to provide subordinate debt as working capital credit remains a major issue for entrepreneurs.
This subordinate debt to be provided by banks would count as quasi-equity and would be fully guaranteed.
In order to encourage companies in export markets, the minister announced funding via the infusion of Rs 1,000 crore through EXIM and SIDBI. Debt funding of Rs 900 crore from banks would also be made available.
Moreover, MSMEs will get invoice financing through Trade Receivable Discounting System (TreDS), an online bill discounting platform that helps cash-starved micro, small and medium enterprises.
Also, the extension of GEM e-marketplace as a unified procurement channel should bring more vendors (from the current 3.2 lakh) onto the platform, said Meghna Suryakumar, founder & CEO, Crediwatch,
Pushkar Mukewar, cofounder of fintech company Drip Capital, said, “Difficulties with credit availability and cash flow have been rampant concerns with MSME exporters for a long time now. The invoice financing solutions to MSMEs, as well as the proposal to set up an app-based invoice financing product, will be crucial for helping the longstanding working capital issues faced by small businesses, especially SME exporters.''
Also, in the light of recent banking fraud, the minister has increased the deposit insurance coverage from Rs 1,00,000 to Rs 5,00,000. However, the move is negative for banks' profitability to the extent they are not able to pass it on to the customers. "As on 31 March 2019, 28% of deposits (in value terms) and 92% of depositors (in terms of number of accounts) were covered by deposit insurance, which is likely to increase to 40-50%,'' said Srinivasan.
Sitharaman also said that the RBI has been requested to consider extending the restructuring window till March 31, 2021 for MSMEs. More than five lakh MSMEs have benefitted from restructuring of debt permitted by RBI in the last year. The window was to end on March 31, 2020.
In addition, MSMEs with a turnover of Rs 5 crore or more will now have to have their books audited, up from the current Rs 1 crore.
Affordable housing
As part of its ‘Housing for All’ and affordable housing initiative, the minister has extended the additional deduction of up to Rs 1,50,000 for interest paid on loans sanctioned on or before 31 March 2020.
The date of loan sanction for availing this additional deduction gets one more year.
Similarly for the developers of affordable housing projects, a tax holiday was provided on the profits earned by 31 March 2020. The minister proposed to extend the date of approval of affordable housing projects for availing this tax holiday by one more year.
SARFAESI
In terms of distressed assets, the government has proposed reducing the asset size under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (Sarfaesi Act), from Rs 500 crore to Rs 100 crore and loans from Rs 1 crore to Rs 50 lakh.
On debt recovery, Suryakumar said, “Allowance to smaller NBFCs to approach the debt recovery tribunal for smaller loans would be beneficial in lowering NPAs and improving the asset quality. However, we expected to hear more clarity on the scheme to provide subordinate debt to be provided by banks for entrepreneurs of MSMEs since less than 15% of the 50 plus million Indian small businesses have access to formal credit.''