Budget 2016: Arun Jaitley puts ball in Rajan's court

The finance minister has raised hopes of a rate cut by the Reserve Bank of India (RBI) by keeping the fiscal deficit target at 3.5% of the gross domestic product, even as he cheered the bankers by making bank deposits as competitive as small savings schemes.

The priority area of consolidation among public sector banks will be spelt out with the government setting up the Bank Board Bureau in the financial year 2016-17.

"Our public sector banks will have to be strong and competitive. The Bank Board Bureau will be operationalised during 2016-17 and a roadmap for consolidation of PSBs will be spelt out," finance minister Arun Jaitely said in his Budget speech. He also said that the process of transformation of IDBI Bank has already started.

The government will unveil a roadmap for consolidation fo the public sector banks. He kept the recaptilisation in public sector banks to Rs 25,000 crore despite the high NPA formation.

Ashvin Parekh, managing partner Ashvin Parekh Advisory, said, "Going by large additions to the bad loans, that government would have made a higher allocation but I think they got in some reforms for the asset reconstruction companies who would be able to recover the loans. But all that is going to take time. By meeting the fiscal deficit at 3.5%, we could expect the RBI also to cut rates. Saving mobilisation will still be dependend on the bank deposits with small savings being taxed."

The minister said the government may consider brining down its stake in IDBI Bank to below 50%.

"Government will take it forward and also consider the option of reducing its stake to below 50%," he said. On the issue of stressed assets of public sector banks, the finance minister said it is a legacy from the past. "Several steps have already been taken in this regard. We are not interfering in lending and personnel matters of the Banks. Structural issues have been addressed in various sectors like power, coal, highways, sugar and steel," he said.

If additional capital is required by these banks, he said, the government will find the resources for doing so.

"We stand solidly behind these banks," Jaitley said. For speedier resolution of stressed assets, Jaitley said the debt recovery tribunals will be strengthened with focus on improving the existing infrastructure, including computerised processing of court cases, to support reduction in the number of hearings and faster disposal of cases.

Kalpesh Mehta, senior partner, Deloitte, said, "May be Rs 25,000 crore is a first step it is anyway a higher amount than Rs 6,000 crore allocated in the 2013 Budget. Considering that banks are moving towards Basel III compliance a higher level of financial support is required as they also need to support the credit growth."