Tag: SARFAESI

Budget 2021 looks to address some of the key pertinent issues in Financial Services sector around bad debts, asset restructuring and infrastructure financing. It has also put a focus on achieving growth and investments through divestments of government interests, increase in FDI limit and policy changes on FPI/NRI investments.Below is a sector wise deep dive on the budget announcements.

Banking: The Banking sector, especially Public Sector Banks, have been given significant support through measures around re-capitalisation to the tune of Rs 20,000 Cr, setting-up of asset reconstruction to handle bad loans and divestment of two PSU Banks. The proposal to divest stakes in two PSU banks is forward looking and will bring better focus on low performing PSU Banks, autonomy and capital optimisation. This will also lead to consolidation in banking and NBFC sector. RBI’s expected guidelines on the ownership of banks will be crucial to facilitate the same.

The proposal to setup an Asset Reconstruction Company/Asset Management company to consolidate and take over the existing stressed debt and then management of the same is a step in the right direction. This will invite interest from Alternate Investment Funds and other potential investors and help Banks in eventual value realisation. It would be required to review finer details of structure and operations of the Asset Reconstruction and management company handling the bad loans/assets.

Insurance: Increase in FDI limit to 74% in Insurance (from 49%) will help revive growth capitalisation of smaller and mid-size Insurance players. The Insurance sector may see heightened interest from foreign investors considering liberalisation including realignment of stakeholders – however the level of interest may be calibrated depending on the ability to control vs own and nature of safeguards proposed.

Suggested Amendments in the Finance Bill to LIC Act around governance and surplus distribution, will be an enabler to the Proposed launch of the mega IPO for LIC in 2021-22. This will also have a greater impact in the Insurance industry and make products of private insurers more competitive and at par with LIC with prospective affect.

NBFCs: The proposal to reduce the minimum loan size eligible for debt recovery under the SARFAESI Act from Rs. 50 lakhs to Rs. 20 lakhs will enable NBFC’s in NPA recovery especially in MSME sector.

Announcement on allocation of Rs 20,000 crore to set up of a Development Finance Institution (DFI) which is expected to fund infrastructure projects and achieve a portfolio of Rs 5 lakh crore within three years is a progressive step towards reviving infrastructure financing, given the planned infrastructure investments over the next few years.

Capital Markets: The proposed launch of a unified securities market code consolidating multiple securities related laws and creation of new investors charter is expected to be beneficial to protecting investors interests. Finer details of the proposed change would need to be reviewed to ascertain its impact on cost, efficiency and compliance process.

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