PSU Banks to get capital support of Rs 6,000 cr in FY12

NEW DELHI: The government today said it will provide capital support to the tune of Rs 6,000 crore to public sector banks during the next fiscal to strengthen their capital base.

"I propose to provide a sum of Rs 6,000 crore for the year 2011-12 to enable Public Sector Banks to maintain a minimum Tier I Capital to Risk Weighted Asset Ratio (CRAR) at 8 per cent," Finance Minister Pranab Mukherjee today said in Lok Sabha while presenting 2011-12 Budget.

He said, during the year 2010-11, the government is providing a sum of Rs 20,157 crore for infusion in public sector banks to maintain Tier I CRAR at 8 per cent and increase the government equity in some banks to 58 per cent.

As part of recapitalisation exercise, the government approved infusion of Rs 6,211 crore into five banks in June 2010. Banks, which had got capital support from the government in the first tranche included Union Bank of India , Bank of Maharashtra , IDBI Bank , UCO Bank and Central Bank India.

The second tranche, announced earlier this month, also provided capital support for several public sector banks, including Corporation Bank , UCO Bank, Indian Overseas Bank and United Bank of India .

In addition, the Finance Minister also announced the recapitalisation of Regional Rural Banks (RRBs)

As a part of financial strengthening of Regional Rural Banks, an amount of Rs 350 crore was given to these banks during this year.

"I propose to provide Rs 500 crore during 2011-12 to enable them maintain a CRAR of at least 9 per cent as on March 31, 2012," he said.

Source: EconomicTimes

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SBI gets right to reduce stake in subsidiaries to 51%

NEW DELHI: The government will give the State Bank of India, India’s biggest bank, the freedom to reduce its stake in its subsidiaries to 51% through a bill proposed to be introduced in parliament during the budget session.

The move will enable SBI to raise capital and boost its own operations. The finance minister in his budget speech on Monday announced that State Bank of India (Subsidiary Banks Laws) Amendment Bill, 2009 will be introduced soon.

SBI is the country’s largest bank with 20% market share and plans to tap the capital market to raise Rs 20,000 crore through rights issue.

"This will give SBI the flexibility to raise funds for its associates banks rather than infusing capital all by themselves. However, it is unlikely that SBI will opt for this option for its associate banks, specially the unlisted banks, since it is in consolidation mode," said Naresh Takker, MD and CEO of Icra .

SBI has a number of associate banks in different parts of the country. In the past few years, it has been merging some of these subsidiaries such as State Bank of Indore and State Bank of Saurashtra with itself in the past three years.

Three other associates are listed such as State Bank of Bikaner & Jaipur, State Bank of Travancore where it holds 75% and State Bank of Mysore , where it holds 92%. In the remaining two banks - State Bank of Hyderabad and State Bank of Patiala SBI holds 100% stake.

Source: EconomicTimes

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Indian Budget 2011-12: Top highlights

Finance minister Pranab Mukherjee on Monday presented to Parliament India's budget for the coming financial year beginning in April.


Following are the highlights of the budget:


TAXES ( Read full story on taxes )

• Standard rate of excise duty held at 10 percent; no change in CENVAT rates
• Personal income tax exemption limit raised to Rs 180,000 from Rs 160,000 for individual tax payers
• For senior citizens, the qualifying age reduced to 60 years and exemption limit raised to Rs 2.50 lakh.
• Citizens over 80 years to have exemption limit of Rs 5 lakh.
• To reduce surcharge on domestic companies to 5 percent from 7.5 percent.
• A new revised income tax return form 'Sugam' to be introduced for small tax papers.
• To raise minimum alternate tax to 18.5 percent from 18 percent 
• Direct tax proposals to cause 115 billion rupees in revenue loss
• Service tax rate kept at 10 percent
• Customs and excise proposals to result in net revenue gain of 73 billion rupees 
• Iron ore export duty raised to 20 percent
• Nominal one per cent central excise duty on 130 items entering the tax net. Basic food and fuel and precious stones, gold and silver jewellery will be exempted.
• Peak rate of customs duty maintained at 10 per cent in view of the global economic situation.
• Basic customs duty on agricultural machinery reduced to 4.5 per cent from 5 per cent.
• Service tax widened to cover hotel accommodation above Rs 1,000 per day, A/C restaurants serving liquor, some category of hospitals, diagnostic tests.
• Service tax on air travel increased by Rs 50 for domestic travel and Rs 250 for international travel in economy class. On higher classes, it will be ten per cent flat.
• Electronic filing of TDS returns at source stabilised; simplified forms to be introduced for small taxpayers.
• Works of art exempt from customs when imported for exhibition in state-run institutions; this now extended to private institutions.

SUBSIDIES 

• Subsidy bill in 2011-12 seen at 1.44 trillion rupees
• Food subsidy bill in 2011-12 seen at 605.7 billion rupees
• Revised food subsidy bill for 2010-11 at 606 billion rupees
• Fertiliser subsidy bill in 2011-12 seen at 500 billion rupees
• Revised fertiliser subsidy bill for 2010-11 at 550 billion rupees
• Petroleum subsidy bill in 2011-12 seen at 236.4 billion rupees
• Revised petroleum subsidy bill in 2010-11 at 384 billion rupees
• State-run oil retailers to be provided with 200 billion rupee cash subsidy in 2011-12

FISCAL DEFICIT

• Fiscal deficit seen at 5.1 percent of GDP in 2010-11
• Fiscal deficit seen at 4.6 percent of GDP in 2011-12
• Fiscal deficit seen at 3.5 percent of GDP in 2013-14

SPENDING

• Total expenditure in 2011-12 seen at 12.58 trillion rupees
• Plan expenditure seen at 4.41 trillion rupees in 2011-12, up 18.3 percent

REVENUE

• Gross tax receipts seen at 9.32 trillion rupees in 2011-12
• Non-tax revenue seen at 1.25 trillion rupees in 2011-12
• Corporate tax receipts seen at 3.6 trillion rupees in 2011-12
• Tax-to-GDP ratio seen at 10.4 percent in 2011-12; seen at 10.8 percent in 2012-13
• Customs revenue seen at 1.52 trillion rupees in 2011-12
• Factory gate duties seen at 1.64 trillion rupees in 2011-12
• Service tax receipts seen at 820 billion rupees in 2011-12
• Revenue gain from indirect tax proposals seen at 113 billion rupees in 2011-12
• Service tax proposals to result in net revenue gain of 40 billion rupees in 2011-12

GROWTH, INFLATION EXPECTATIONS 

• Economy expected to grow at 9 percent in 2012, plus or minus 0.25 percent
• Inflation seen lower in the financial year 2011-12

DISINVESTMENT

• Disinvestment in 2011-12 seen at 400 billion rupees
• Government committed to retaining 51 percent stake in public sector enterprises.

BORROWING

• Net market borrowing for 2011-12 seen at 3.43 trillion rupees, down from 3.45 trillion rupees in 2010-11
• Gross market borrowing for 2011-12 seen at 4.17 trillion rupees
• Revised gross market borrowing for 2010-11 at 4.47 trillion rupees

POLICY REFORMS

• To create infrastructure debt funds
• FDI policy being liberalised.
• To boost infrastructure development with tax-free bonds of 300 billion rupees
• Food security bill to be introduced this year
• To permit SEBI registered mutual funds to access subscriptions from foreign investments
• Raised foreign institutional investor limit in 5-year corporate bonds for investment in infrastructure by $20 billion
• Setting up independent debt management office; Public debt bill to be introduced in parliament soon
• Bills on insurance, pension funds, banking to be introduced.
• Constitution Amendment Bill for introduction of GST regime in this session.
• New Companies Bill to be introduced in current session

SECTOR SPENDING

• To allocate more than 1.64 trillion rupees to defence sector in 2011-12 
• Corpus of rural infrastructure development fund raised to 180 billion rupees in 2011-12
• To provide 201.5 billion rupees capital infusion in state-run banks in 2011-12
• To allocate 520.5 billion rupees for the education sector. Rs.21,000 crore for Sarva Shiksha Abhiyan. 
• To raise health sector allocation to 267.6 billion rupees 
• Rs.500 crore more for national skill development fund.
• Rs.54 crore each for AMU (Aligarh Muslim University) centres at Murshidabad and Mallapuram.
• Rs.58,000 crore for Bharat Nirman; increase of Rs.10,000 crore.
• Mahatma Gandhi National Rural Employment Guarantee Scheme wage rates linked to consumer price index; will rise from existing Rs.100 per day.
• Increased outlay on social sector schemes. 
• Infrastructure critical for development; 23 percent higher allocation in 2011-12.

AGRICULTURE

• Removal of supply bottlenecks in the food sector will be in focus in 2011-12
• Agriculture growth key to development: Green Revolution waiting to happen in eastern region.
• To raise target of credit flow to agriculture sector to 4.75 trillion rupees
• Gives 3 percent interest subsidy to farmers in 2011-12
• Cold storage chains to be given infrastructure status
• Capitalisation of National Bank for Agriculture and Rural Development (NABARD) of 30 billion rupees in a phased manner
• To provide 3 billion rupees for 60,000 hectares under palm oil plantation
• Actively considering new fertiliser policy for urea
• Food storage capacity to be augmented - 15 more mega food parks to be set up in 2011-12; of 30 sanctioned in previous fiscal, 15 set up.
• Comprehensive policy on further developing PPP (public-private-partnership) model.
• Farmers need access to affordable credit.
• Moving to improve nutritional security.
• Necessary to accelerate production of fodder.

ON THE STATE OF THE ECONOMY 

• "Fiscal consolidation has been impressive. This year has also seen significant progress in those critical institutional reforms that will pave the way for double digit growth in the near future."
• "At times the biggest reforms are not the ones that make headlines, but the ones concerned with details of governance which affect the everyday life of aam aadmi (common man). In preparing this year's budget, I have been deeply conscious of this fact."
• Food inflation remains a concern
• Current account deficit situation poses some concern
• Must ensure that private investment is sustained
• "The economy has shown remarkable resilience."
• Setting tone for newer, vibrant economy.
• Economy back to pre-crisis trajectory.
• Development needs to be more inclusive.

ON GOVERNANCE

• "Certain events in the past few months may have created an impression of drift in governance and a gap in public accountability ... such an impression is misplaced."
• Corruption is a problem, must fight it collectively

MORE

• Govt to move towards direct transfer of cash subsidy for kerosene, LPG and fertilisers.
• Financial Sector Legislative Reforms Commission, to be headed by former Supreme Court judge B Srikrishna, to complete its work in 24 months; to overhaul financial regulations.
• Five-fold strategy against black money; 13 new double taxation avoidance agreements; foreign tax division of CTBT strengthened; strength of Enforcement Directorate increased three-fold.
• Bill to be introduced to review Indian Stamp Act.
• New coins carrying new rupee symbol to be issued.
• Anganwadi workers salary raised from Rs.1,500 to Rs.3,000.
• Mortgage risk guarantee fund to be created for economically weaker sections.
• Housing loan limit for priority sector lending raised to Rs.25 lakh.

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Banks to get Rs 140 for every 'no frills' account

The government will give Rs 140 to the banks for every 'no-frills' account opened by them as part of its initiative to expand the reach of banking services in the country, Finance Minister Pranab Mukherjee today proposed in Budget.

In total, the government will grant Rs 50 crore to banks in the next fiscal 2011-12 for this exercise.

"Financial support to the banks for opening 'no frills' accounts under Swabhiman Scheme as part of Financial Inclusion Plan Rs 50 crore (Budget estimate for 2011-12)," Mukherjee said.

No-frills accounts allow customers to have zero balance, and also offer limited facilities. They are aimed to cater to the first-time customers whose banking needs are not much.

According to an estimate, between November 2005 to March 2010, about 50 million no-frills accounts were opened.

The move is the part of financial inclusion plan which will encourage the rural population to open an account and avail banking facilities.

In his Budget speech, Mukherjee said that the banks have identified about 73,000 habitations for providing banking facilities. During this year, banks will cover 20,000 villages and remaining will be covered during 2011-12.

Besides, he also said that a multi-media campaign, 'Swabhimaan', has been launched to inform, educate and motivate people to open bank accounts.

While last year, Mukherjee had outlined that all the 60,000 unbanked villages having a population of over 2,000 will be covered by March 2012.

Source: Business Standard

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Banking Laws Amendment Bill to benefit commercial banks

Commercial banks , especially those in the private sector, will get a boost with government reviving plans to increase their voting rights through changes in the law. The Banking Laws Amendment Bill , 2011, will give shareholders voting rights in proportion to their holding.

As of now, the voting rights of a shareholder in a PSU bank is limited to 1% of their holding while in the case of private banks it is 10%. "Aligning ownership right with the ability to influence decision is very positive from the governance point of view and will also positive for foreign investors looking at investment opportunities here," said Naresh Takkar , MD and CEO of rating agency Icra Ltd.

Many banks and investors have been demanding these changes for a long time now. However, there was resistance from the RBI on grounds that an entity or an individual would corner a chunk of shares in the bank without regulatory approval. The RBI restricts bulk purchases now but that is only in the form of a directive.

To prevent this, the Bill has proposed that an individual or entity can hold more than 5% stake in a bank only after receiving approval from RBI.

Source: EconomicTimes

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