If we look at the banking sector, the players have been encouraging clients to keep their funds, wherein, for the past few quarters, most banks have reported a decrease in the proportion of CASA deposits to total deposits.
"Given the challenges of mobilising deposits from the retail segment, some incentives for retail bank deposits could improve banks' ability to garner such deposits and support credit supply," said Sachin Sachdeva, Vice-President, Sector Head - Financial Sector Ratings at ICRA.
"This is especially significant in light of the proposed modifications to the liquidity coverage ratio framework, as well as the moderated LCR of banks in recent quarters. The moderation in LCR is due to slower growth in bank retail deposits," he said.
A draft Reserve Bank of India (RBI) circular on LCR recommends an additional 5% run-off factor for retail deposits with online and mobile banking capabilities. Experts anticipate that the Budget will also include tax breaks for wholesale loans and measures for acquiring bad loans from the banking system.
"Considering that the Indian banks have been slowing down on loan growth in wholesale sector, the sector would hope for tax incentives and other measures to boost the lending to this segment which has seen a very steady uptick in private credit flow to fill the gap," according to Kumar Saurabh Singh, partner at Khaitan & Co. Credit growth to the industry has increased from a year ago, but it remains in the single digit range. According to RBI data, loan growth to industry was 8.1% in the fortnight ended November 29, 2024, up from 5.5% the previous year.
"In addition, with the strength of government guarantee to back NARCL's bid for acquisition of bad loans, the private sector ARCs would also hope for easing of norms and incentives for listing so as to create a deeper market and competitive landscape for acquisition of bad loans from the banking system," stated Singh, referring to the National Asset Reconstruction Company and its affiliates.
Certain policies, such as increased foreign direct investment (FDI) in public sector banks, cooperative bank mergers, and greater tax relief for foreign banks, will contribute to the banking sector's long-term growth. "I am looking for higher FDI limitations for public sector banks. Currently, it is around 20%, and a greater ceiling would result in better capitalisation and tighter control," said Vivek Iyer, partner at Grant Thornton Bharat LLP. "Secondly, there must be a proper plan for co-operative bank consolidation. Third, I believe there should be tax rate rationalization for foreign banks. We need foreign bankers and the size and scale to be relevant to the country," Iyer added.
