Union Budget 2013-14: Mixed impact on banks says India Ratings

The Union Budget 2013-14 will benefit government banks through equity infusion and gradual easing in stress on infrastructure loans. However, the continued focus on growth in agriculture credit may keep non-performing loans (NPL) levels elevated.

The planned equity injection of Rs14,000 crore in FY14 will maintain the support momentum that the government initiated in FY09. More importantly, the finance minister reiterated the government's commitment to ensure that its banks ''always'' meet the Basel III capital norms.

The capital requirements, under the Basel III regime, will substantially pick-up after FY15 and peak in FY18.

The creation of a level playing field for private sector banks by extending them the interest subvention scheme for farmers will improve their competitiveness in rural areas.

However, the 22 per cent growth targeted in agriculture loans may maintain the pressure on NPLs, particularly for government banks, as NPLs in this sector have been amongst the highest in FY13.

Some easing of stress in the infrastructure sector may emerge with the setting up of a regulatory authority for the road sector, though improvements may not be noticed immediately. Asset quality pressure may ease if investments – and thereby growth – is stimulated by the proposed investment allowance.