Good news for banking sector
The year so far has been a mixed bag for the sector. Increased interest rates have positively impacted their spreads, while the slowdown in credit off-take has contained asset growth.
The credit growth slowdown (22 per cent growth during April -December 2007 as compared to 28 per cent during the same period in 2006) was largely due to the decline in retail loan growth.
The domestic banking companies remained insulated from the credit crisis inflicted by the sub-prime issues.
Life insurance business demonstrated a growth of 9.6 per cent by generating new business premium of Rs 53,570 crore, with ULIPs and pension plans being major growth drivers.
The private sector recorded an impressive growth rate of 78 per cent for the said period. In the non-life insurance segment, the gross premium underwritten was registered at Rs 20,800 crore for April-December 2007.
Competition intensified due to drop in tariffs across all sectors (free pricing regime), especially the fire and engineering sectors. Brokerages were the flavour of the year, with several private equity and foreign financial services firms acquiring/investing in brokerage houses on the back of a booming stock market and rapidly growing trading volume.
Corporate Impact
| | “The historic loan waiver of Rs 60,000 crore announced by Finance Minister P. Chidambaram will not only clean the PSU banks’ balance sheet, but also add to their profitability” — M.V. Nair |
State Bank of India: The loan waiver for small and marginal farmers will reduce its NPA and also add to its profitability as the government will provide matching funds for the loan waiver. In addition, the increased focus on agriculture will help in higher credit offtake in rural markets
- ICICI Bank: The Budget talks about deepening the debt market. The bank’s large SME and corporate clients will benefit from this and it will help the bank in the long run by allowing it to sell other banking products to these clients
- HDFC Bank: Given its vast network (including 400 new branches after merger with the Centurion Bank of Punjab), it is well poised to tap the new opportunities in rural markets
- Citibank: The bank has immense global expertise in currency and interest rate futures. The Budget’s proposals for exchange traded currency and interest rate futures are good news for the foreign bank
Sectoral Impact
- Waiver of bank loans to farmers of Rs 60,000 crore
- Short-term capital gains tax on units/listed securities increased to 15 per cent from 10 per cent
- Commodities Transaction Tax introduced on specified commodities derivatives transactions
- Banking Cash Transaction Tax (BCTT) withdrawn
- Exchange-traded currency and interest rate futures proposed
- Requirement of PAN extended to all financial market transactions
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