Budget 2020: All you need to know about proposed reforms in banking sector, financial markets

As the Finance Minister Nirmala Sitharaman presented the Union Budget on Friday, she revealed several reforms across the banking sector and financial markets.

While presenting the budget, she said, "A clean, reliable and robust financial sector is critical to the economy. In our efforts to achieve the USD 5 trillion economy, the financial architecture should keep evolving and move from strength to strength.”

She proposed the "sale of balance holding of Government of India in IDBI Bank to private, retail and institutional investors through the stock exchange.", riding on the bank consolidation and capital infusion of Rs. 3,50,000 crore into Public Sector Banks (PSBs).

Moreover, she announced that the Deposit Insurance and Credit Guarantee Corporation (DICGC) has been permitted to increase Deposit Insurance coverage to Rs. 5 lakh per depositor from Rs. 1 lakh.

With respect to cooperative banks, the Union Budget recommended amendments to the Banking Regulation Act to improve oversight through RBI.

Further, Non-Banking Financial Company's (NBFC) limit to be eligible for Debt Recovery Mechanism via SARFAESI Act, 2002, is proposed to be reduced from Rs. 500 crore to Rs. 100 crores or loan size from existing Rs. 1 crore to Rs. 50 lakh.

Sitharaman also stated that the budget proposed amendments to the Pension Fund Regulatory and Development Authority (PFRDAI Act) to initiate separation of National Pension System (NPS) trust of government employees from the statutory body. This would enable the employees to set up a pension fund other than the government.

Moreover, to infuse the flow of capital into the financial system, many measures were proposed in the Budget.

As per the press release by the Finance Ministry, the measures are as follows:

1. FPI limits in corporate bonds are proposed to be increased to 15 per cent of outstanding stocks from the current 9 per cent.

2. Specified categories of Government securities would be opened fully for non-resident investors, along with domestic investors as well.

3. New Debt-based Exchange Traded Fund (ETF) consisting primarily of Government Securities to be floated. This is on the back of the massive success of the previous version. Further, it is expected to give retail investors access to Government securities, attractive investment option to Pension Funds and long-term investors.

4. New legislation is proposed for laying down mechanisms for netting of financial contracts; this is to improve investor confidence and further expand the scope of Credit Default Swaps.

5. A new mechanism would be devised to further support the Partial Credit Guarantee Scheme floated by the Government, post the Union Budget 2019-20, to address the liquidity crisis of NBFCs. The Government will offer support by guaranteeing securities so floated.

Sitharaman presented the Union Budget 2020 in a record speech of 160 minutes. She had cut short her Budget speech before she could finish her 13,331-word speech. 

This was the longest Budget speech by any finance minister.