India Morning Report: New Private Banks circa 2013 and a Fiscal Responsibility Map for the Republic

The General Post Office and Reserve Bank of In...
The General Post Office and Reserve Bank of India building from across Lal Dighi in B.B.D.Bagh, Calcutta (Photo credit: Wikipedia)


Banks start the week with the right foot forward as New Bank guidelines are released well in time . New banks would have to hold 25% of their branches in rural areas and existing NBFCs would be able to convert their Tier II and rural branches into bank branches without any new RBI approvals. Bank M&A could be the flavor of the year as RBI guidelines suitably condone upper limits for Corporates wishing to enter banking thru wholly owned NOFHCs (Non Operating Financial Holding Companies) including a minimum of 40% ownership of the bank by the NOFHC , less than 5% by NRIs and 49% FDI in the bank. NOFHCs will have to bring the bank co public in three years and bring their stake down to less than 20% in 10 years and 15% in 12 years. The minimum capital required at INR 5 bln and the CAR requirement of 13% ( for each of the financial entities in the NOFHC structure)


States have unwittingly contributed on the green side of the Fiscal Report for India in FY 2013 as plan expenditure which does include state allocation ( which was likely fully drawn) had been drawn only 56% by December 2013 making likely according to the ET follow up that India will spend less than 90% of the budgeted Plan Expenditure for FY 2013 at INR 4.28 tln. That means Chidambaram is under less er pressure in the last full year budget to be presented by this government and need not hold back investments in ‘populism’ espoused by Food Security and Employment guarantees safeguarding the few precious investments India has made in social infrastructure though not making it better for sectoral spends on Education Health or reining in higher subsidy expenditure leading to a non plan bill of INR 13.5 tln this fiscal , a three quarters of a trillion more than budgeted.


The $2 bln RBS operation in India is also losing 1000 more employees as Foreign banks get the new ring-fenced structure in India and mull over as the guidelines will also define new approvals for existing banks where guidance is required for exissting bank operations looking to pare expenses in Capital investments in national operations as they struggle with new living wills that decide their winding down of liabilities in case of another global failure. Global banks continue to negotiate for transparency and a level playing field and in the meantime inorganic M&A could possibly not be as discouraged as it was in the past decades. In the meantime most Foreignbanks stick to restricted CIB operations despite holding a full licence


On the budget front, more infraco spending and no new taxes are foretold as India settles in for a recovery with new Capital investment that could also buoy revenues by a good INR 200 bln for each 1% pop in the GDP. Stronger Fisc targets for FY14 and FY15 will be missed again as the markets decide to hedge their bets wwith shorts on Punj Lloyd and Maruti while the Bank Nifty looks to shine the light on market followers and burn a starting point for the post budget rally.




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