Studying New Budget Through the Viewpoint of NBFC and Banking

The Union Budget 2021-22 has displayed a rapid growth in Capex allocation (up to nearly 26% YoY) and outlining manufacturing as a major pillar for the Indian Economy while indeed permitting a higher financial shortage low-interest situation, the viewpoint of NBFC and Banking. This Budget has attached the present year’s budgetary shortage at 9.5% (Financial Year 20-21). The financial shortage target has been above the market hope for both years. The expectation for Financial Year 20-21 was approx 7.5%, while for the Financial Year 2021-22 was around 5 to 5.5%. In this article, we will examine the new Union Budget through the viewpoint of NBFC and Banking.

What are the Key Highlights for Union Budget 2021-22? – Infrastructure

1. As per the anticipation, the Government of India has its capital expenses GBS (Gross Budgetary Support) allowance by Rs. 5.54 lakh crores in a budget to elevate infrastructure spending, focusing on economic recovery. Moreover, Rs. R lakh crores for the extra Capex to nudge states, allowing Rs. 20,000 crores toward the development of DFI to have a lending portfolio of Rs. 5 lakh crores over the upcoming 5 years to activate funding requisite to satisfied NIP. It’s to create various opportunities in major segments or areas such as defence, railways, infrastructure power, roads, etc.
2. Highways and Roads were the most flexible part of the infrastructure sector. In general Capex front for Highways and Roads, the revised approximates Financial Year-21 spends is fixed 12% higher at Rs. 92,053 crores vs budgeted estimations of 81975. Even for Financial Year-22, the Indian Government has fixed the road Capex at 108230 crores, a growth of 17% YoY on an honest RE base. The Government of India is also seeking to deliver alternative financing source by monetising five operating projects worth Rs. 5000 crores via NHAI INVIT.
3. Most significantly, the Union Budget also provides for another source of financing, such as establishing DFI, monetisation of assets across sections such as Roads, Highways, Airports, etc.

Disinvestment Programme Receives a Foremost Push in Union Budget 2021-22

In the Budget 2021-22, the Finance Minister^[1] announced the target of Rs. 1.75 lakh crores for disinvestment. Outstandingly, all plan stake sales announced already would be finished in the Financial Year-22E, while Niti Ayog has been assigned with working of the following lists of PSUs (Public Sector Undertakings) for disinvestment. Among all the new entities in which the Indian Government stake would be monetised next year has integrated two banks and a general insurer. Remarkably, the Life Insurance Corporation of India (LIC) would also become a part of the Financial Year-22 disinvestment programme. The Government of India has also notified an asset monetisation plan for encashing some operational assets like NHAI Toll Roads, Sports Stadium, Gas Pipelines, Power Transmission Projects, Tier 2/3 Airport Assets, etc.

Viewpoint of NBFC and Banking is Main Focus

Establishing an Asset Reconstruction and Management Company or ARC or a bad bank, to begin with, existing stressed assets with a special focus on resolving stressed assets recovery remain confident for the banking sector, especially PSU banks. Moreover, Rs. 20,000 crores, capital infusion to strengthen PSU’s banks’ balance sheet and focus on the growth. The development & infrastructure push from Union Budget to books the banking credit growth from the viewpoint of NBFC and Banking.

After this Government of India introduced a combination of thirteen public sector banks into the five central banks, the Government has taken the 1st step towards privatising state-run banks; begin with the disinvestment of two PSUs (Public Sector Undertakings) Banks, in a bid to speed up long-awaited reforms in a banking sector.

Government Focus on Increasing Farm Income – Viewpoint of NBFC and Banking

The Government of India remains dedicated to increasing farm income with record achievement of farm produce (Pulses, Rice, and Wheat) from domestic farmers for the Financial Year 2021. Rice procurement is ar Rs. 1.72 lakh crores for the Financial Year 2021, wheat acquiring at Rs. 75,000 crores and pulses at Rs. 10,00 crores. It also highlighted doubling the funds under NABARD for micro-irrigation for the Financial Year 2022 at Rs. 10,000 crores vs Rs. 5,000 crores in the Financial Year-2021. The Union Budget 2021-22 also set a goal for agriculture credit at Rs. 16.5 lakh crores for the Financial Year-2022. It also discussed the introduction of agricultural transportation and improvement cess on actual products.

Commercial Vehicles Gap Receives an Impulsion in the Union Budget 2021-22

For auto-space, the announcement of the Budget introduced India’s vehicle scrappage policy for a commercial vehicle older than fifteen years & personal cars older than twenty years. Entities across a value chain (tire players, OEMs, tire chemical suppliers, forging players) stand to gain as a result. Other initiatives in communications & transportation space and the agricultural Economy (focus on farm incomers) are positive for some leading auto OEMs.

Budget Progress on Direct Taxes for Individuals

1. ULIPs (Unit-Linked Insurance Products) with top premiums of more than Rs. 2.5 lakhs per year will be subject to tax on development. It will bring taxation on top value ULIPs at par with mutual funds;
2. Extra deduction of 1.5 lakhs on interest on the housing loan for reasonably priced housing has been increased on home loans up to 31^st March 2021. The scheme was announced in the year 2019 Union Budget and has been extended since then;
3. No noteworthy changes in income tax slabs/rates for corporates or individuals;
4. Tax release on any interest earned on employee’s contribution towards a variety of PFs or Provident Funds has been limited to year grant of Rs. 2.5 lakhs.

Higher than Expected Financial Shortfall and Government Borrowing

Due to the higher shortfall, the borrowing from the bond market is higher also. The Finance Minister has announced an extra Rs. 80,000 crores of market borrowing in the present Financial Year, while for the Financial Year 2021-22, a gross market borrowing is fixed at Rs. 12 lakh crores. The bond market was anticipating a gross borrowing of around Rs. 10 crores for the Financial Year 2021-22. As the reaction of the bond market has been unfavourable, the bond market has dissatisfied with zero announcements about a road map for the insertion of Indian Sovereign Bonds in international bond indicators, leading to major inflows.

Conclusion – Viewpoint of NBFC and Banking

The Financial or Fiscal Sector is the strength of the Economy of India and has been one of the significant areas in the overall scheme of getting back in demands and encouraging the Economy from the viewpoint of NBFC and the Banking Sector. The Finance Minister has announced Rs. 1 lakh crore liquidity boosts at the present Financial Year. This is not only the supply of money for Non-Banking Financial Company, but this will be a new source. Hence, it would add to the whole liquidity condition for Non-Banking Financial Companies will have a positive thing. The Finance Minister highlighted that funding should be available to necessarily sound NBFCs by mutual funds and banks.

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