Banking on the budget: No solace for bad debt

The government continued to talk tough on economic offenders and wilful defaulters without outlining any concrete measures to tackle the bad debt problem of banks. The Budget did not mention the formation of the bad debt bank which was to pool in resources from banks and other government agencies to resolve the sticky loans.

Union Finance Minister Arun Jaitley said that the government will frame a new law which will allow agencies to confiscate domestic assets of economic offenders who flee the country in an obvious reference to Vijay Mallya.

The budgetary allocation of Rs 10,000 crore to beef up banks’ capital — and this money will be distributed on various performance parameters — is also lower than the Rs 25,000 crore that the government said they would allocate during the current year under the Indradhanush scheme.

One small breather that banks got in the Budget is the leeway to deduct a larger portion of the capital they set aside for bad loans from their taxable income. Now, 8.5 per cent of the capital set aside for bad loans can be deducted from the taxable income against the 7.5 per cent earlier.

Naresh Takkar, Managing Director and Group CEO of rating agency ICRA said, “The Union Budget for FY2018 has attempted to stimulate economic activity through modest tax cuts for smaller firms and taxpayers in the lowest slab, and higher productive spending on infrastructure and social security. However, the need to demonstrate fiscal consolidation has reduced the space available for providing substantial funds for recapitalisation to public sector banks.”

Banks, which are struggling to get their lending business back in motion, will see some measures aimed at boosting credit. The affordable housing projects are being given the status of infrastructure and the highest target for farm credit has been increased to Rs 10 trillion. Lending target under Pradhan Mantri Mudra Yojana has been set at Rs 2.44 lakh crore with priority to Dalits, tribals, backward classes and women.

However, there was no announcement for asset recovery except for listing of the security receipts issued by the Asset Reconstruction Companies (ARCs). The receipts will release more funds, experts say.

Making SRs marketable can help reform weaker banks bogged down by specific cases. With SEBI approval, the SRs can be listed by the banking system. This could pave way for more funds coming into the sector attracting domestic and foreign investors.

Melwyn Rego, Managing Director and CEO of Bank of India, said in a release, “As a positive for the banking sector, thrust has been accorded to evolving a swifter and effective resolution mechanism. Provisions for NPAs to avail tax benefits have been raised. Target under PMMY has been doubled to benefit the poor and under-privileged.”