ECLGS
· ECLGS has been extended to March 2023
· The guarantee cover has been expanded to a cumulative amount of Rs 5 trn.
Impact: This will incrementally help in managing the asset quality of MSME loan books of banks.
Some of the MSME-focused banks in our coverage universe include CUB and DCB and, therefore, theoretical beneficiaries. The benefit would ultimately depend on the extent to which MSMEs come forward for help and the extent to which banks grant it, both of which may not be very significant, especially compared with the quantum of ECLGS disbursement already extended, assuming the Covid-19 pandemic does not worsen.
CGTMSE
· CGTMSE (Credit Guarantee Trust for Micro and Small Enterprises) will be revamped with required infusion of funds.
· This will facilitate additional credit of Rs 2 trn for micro enterprises.
Impact: This will incrementally benefit the micro enterprise lending business of banks. Some banks in our coverage universe which possess micro enterprise lending in somewhat mentionable proportion include IIB and RBL.
PMAY
· In FY23, 8mn houses will be completed for identified beneficiaries under Pradhan Mantra Awas Yojana (PMAY).
· Rs 480bn has been allocated for this purpose.
Impact: This is potentially incrementally beneficial for banks that have affordable housing finance businesses, viz. CSB and RBL, both of which have recently started this business. As such, some portion of the housing finance business of most banks would fall under affordable housing though, the benefit may not be large in the context of the overall balance sheet size of large banks, especially since the latter do not generally focus on particularly small ticket sizes.
Digital Banking
· The benefits of digital banking should reach everyone.
· 75 digital banking units in 75 districts will be set up by Scheduled Commercial Banks.
Impact: This will serve to further familiarize the Indian banking consumers with digital banking.
Digital payments
· Financial support for digital payments eco-system announced in the previous budget will continue in FY23.
· Payment platforms that are economical and user-friendly will be promoted
Impact: At the margin, this sounds somewhat incrementally positive for economical form factors of digital payments viz. UPI and Rupay Debit Card but we would seek more elaboration.
Cross border insolvency
· Enhancements will be made to the Insolvency and Bankruptcy Code in order to facilitate cross border insolvency resolution.
Impact: This could potentially benefit banks that have material overseas loan books such as BOB, SBI and ICICI.
Surety bonds
· For government procurement, the use of Surety bonds will be made acceptable as a substitute for bank guarantee.
· IRDAI has already provided the framework for issue of Surety bonds by insurance companies.
Impact: This should be potentially beneficial for general insurance companies and, among our coverage universe, for ICICI Lombard.
Digital Rupee
· A Central Bank Digital Currency will provide a boost to the digital economy
· The RBI will introduce a Digital Rupee in FY23, based on blockchain and other technology.
Impact: This indirectly legitimizes cryptocurrencies in general though not any and all cyptocurrency by default. It could also serve to potentially draw flows away from existing cyptocurrency towards the Digital Rupee owing to high legitimacy of the latter.
Air India
· The revised estimate for capital expenditure includes an allocation of Rs 519.71bn towards settling outstanding guaranteed liabilities of Air India.
Impact: This allocation officially paves the way for the repayment of Air India’s debt to the respective banks that still have exposure to Air India.
Insurance for the differently abled
· The payment of lumpsum or annuity was eligible for tax deduction if payment was done upon the death of the parent of the differently abled.
· Now, the tax deduction would be available even if the payment is done during the lifetime of the parent, if they have reached 60 years of age.
Impact: This improves the relative attractiveness of the insurance product for the parents of the differently abled. Though this may not alter business opportunity for life insurers in a dramatic way, it is a welcome step.
National Pension Scheme
· Earlier, 14% of employer NPS contribution was eligible for tax deduction for central government employees but only 10% for state government employees.
· Now, the state government employees have been brought on par with central government employees.
Impact: This enhances the relative attractiveness of the NPS as a pension scheme. At the margin, it would help private sector life insurers in our coverage universe that have pension fund businesses such as HDFC Life, IPRU and SBI Life.
Taxation of virtual digital assets
· Income from transfer of virtual digital assets to be taxed at 30%.
· Only cost of acquisition will be allowed while computing such income.
· TDS on payment made for transfer of digital asset at 1% above a monetary threshold.
· Gift of virtual asset to be taxed in the hands of the recipient.
Impact: This makes equities more attractive than cryptocurrency, ceteris paribus. Hence, the move is positive, at the margin, for equity brokers. Furthermore, a number of new millennial customers who would have been exclusively or primarily cryptocurrency traders would now consider opening equity trading accounts.
GIFT-IFSC
· World class foreign universities will be allowed in the GIFT City free from domestic regulations except those by IFSCA to facilitate availability of high-end human resources for financial services.
· Income of a non-resident from offshore derivatives, OTC derivatives issued by an offshore banking unit, income from royalty and interest on account of lease of ship and income from PMS in IFSC shall be exempt from tax, subject to specified conditions
Impact: These steps promote the development of the GIFT City as an international financial services hub. These also promote overseas business, at the margin, for Indian financial services companies.
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