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Notes from Indian Budget 2010-11

The Union Budget was released amidst a lot of expectations from the industry.

Key highlights of Budget 2010-11

  • Rs 16,500 crore has been provided to ensure that Public Sector Banks are able to attain a minimum 8% Tier-I capital by March 31, 2011
    Rs 1,73,552 crore has been provided for infrastructure development, which accounts for over 46% of the total plan allocation. Allocation for road transport has been increased by over 13% from Rs 17,520 crore to Rs 19,894 crore
  • Plan allocation for the power sector excluding Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) doubled from Rs 2,230 crore in 2009-10 to Rs 5,130 crore in 2010-11
  • The Plan and Non-Plan expenditures in BE 2010-11 are estimated at Rs 3,73,092 crore and Rs 7,35,657 crore, respectively. While there is a 15% increase in Plan expenditure, the increase in Non-Plan expenditure is only 6% over the BE of the previous year Fiscal deficit for BE 2010-11 has been estimated at 5.5% of GDP, which works out to Rs 3,81,408 crore

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Banking

Indian Banking Industry Review – Feb 2010

We are seeing lots of news about the Indian banking industry in the domestic as well as in overseas markets. The Indian Budget 2010-11 has mentioned new banking licenses, which means we will see new players and hence more competition, and better savings and lending rates, which is better for the consumers and borrowers.

  • On the domestic front, regulatory action in terms of increasing the CRR ratio and migration to base rate from the current PLR system were on the negative side while marginally better than expected third quarter results were a positive.
  • The change in the CRR rate has already resulted in a sudden spike in the yields especially in the short end of the yield curve.
  • The hardening of bond yields will have negative impact on Q4FY10 results of banks especially PSU banks.

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Foreign Investors

Promoter Share Pledging for Business Loans Financing

Under Promoter Funding facility the promoters of listed companies can pledge their shares to to get loans to meet their fund requirements. Promoter loans against shares is an instant line of credit and interest is charged only on the amount utilized. Another benefit of loan against shares is that owners do not have to liquidate their holdings to meet short-term cash requirements. The facility is increasingly used by promoters to hike their stake via the creeping acquisition route, convert outstanding warrants into equity shares, buy out other investors/ PE funds, meet company’s short term borrowing requirements etc. Continue reading Promoter Share Pledging for Business Loans Financing →