Thrust on rural banking likely in Budget

One sector that the Finance Minister can8217;t afford to ignore in this year8217;s budget is the rural sector. The key factors here are: g...

One sector that the Finance Minister can8217;t afford to ignore in this year8217;s budget is the rural sector. The key factors here are: getting finance at cheap rate and channelising massive investments in the rural economy through the banking channels.

With farmers8217; deaths remaining in the limelight and almost all parties batting for the rural/farm sector, bankers are expecting enhanced focus on agricultural/rural banking with possible sops extended for funding of projects dedicated to such projects.

8220;Infrastructure lending sops, especially relating to continuation of tax breaks and possibly some expansion in the scope of priority sector lending to include infrastructure-related projects, are likely,8221; says Rajeev Varma and Aashish Agarwal of DSP Merrill Lynch.

Overall, the Budget will send the signal to the Reserve Bank Of India, which carries out the changes in the sector 8212; like preparing a roadmap for allowing entry of foreign banks in India, allowing banks to raise deposits through micro finance institutions etc.

SBI chairman AK Purwar says there is pressure on liquidity in the banking system and subsequently hardness on interest rates. 8220;But the bank will wait till the Budget to take a call on revising interest rates,8221; Purwar says.

However, thrust on rural credit and any sop on the same would have a positive impact on all banks, primarily government banks. Within the private sector, ICICI Bank and HDFC Bank could be key beneficiaries.

8216;8216;With the recent liquidity pressures and enhanced possibility of funds shifting from deposits towards equity and debt mutual funds owing to the tax arbitrage, the Finance Minister may announce tax breaks on interest earned on deposits up to a certain ceiling of about Rs 50,000 to make deposits relatively more attractive,8221; said a banker.

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However, the FM is likely to continue the tax breaks provided on mortgage loans and also to home loan companies under Section 36 of the IT Act relating to exemption on tax on 40 per cent of profits derived from housing projects.

Further, the FM may carry forward the issue of voting rights in listed banks and the roadmap for foreign banks announced in the last year8217;s budget. 8220;Don8217;t be surprised if the government takes measures to convert Nabard, Exim Bank and Sidbi into banks,8221; said the chief of a bank.8217;And if the buzz on the market is any indication, Chidambaram will hike the FII investment ceiling in banks from 20 per cent.