Budget focus: Agri, NBFC & MSME sectors require urgent attention

Chennai: With less than two days to go before Finance Minister Nirmala Sitharaman presents the nation’s budget, a report has said public sector banks in the country may require around Rs 50,000 crore growth capital in FY20, assuming a 12-13 per cent credit growth.

According to State Bank of India’s special research report on budget for ANM (agriculture, NBFC and MSME) and “measured” fiscal consolidation, the NBFC and MSME sectors require urgent attention in the upcoming budget.

“Assuming a 12-13 per cent credit growth in FY20 with credit risk weighted assets of 70 per cent, PSBs may be requiring around Rs 50,000 crore growth capital in FY20. However, the same also depends upon some major variables i.e., alternate long-term investor, recoveries from NCLT (National Company Law Tribunal), investment environment, out of NCLT settlements/auctions, treasury gains/loss, MTM (mark-to-market) provisioning of investments, additional or provision write-back,” said Group Chief Economic Adviser, SBI, Soumya Kanti Ghosh.

“At present, the share of top five banks in credit is around 39 per cent. Thus, continued banking consolidation will improve the banks’ ability to lend for developmental needs. There is also an immediate need to augment the number of NCLT benches so that the resolution system does not get choked. HR reforms for PSBs must also be a priority for the new Government,” the report said.

Referring to lapses in the NBFC sector, it said measures are required to send a strong message. “Till March 2020, Rs 4.75 lakh crore of bonds and papers of NBFC sector are set to mature. Further, most of the NBFC exposure is to the reality sector. Some sort of demand boost for the realty sector, like GST concessions to the buyers and stamp duty rationalization could very well give a flip to the reality sector and can also help solve part of the NBFC quagmire that we are currently in,” the report said.

Regarding agriculture, the report said the budget could focus upon tweaking with the agricultural sector. “A big push to the term loan will boost the agricultural sector. Further, setting up of an Agri-marketing Reforms Council (AMRC) on the lines of the GST council and an exclusive focus on harnessing the rapidly shrinking water resources also deserve higher priority,” it said.

Focusing on the MSME sector, the SBI report stated that, like NBFC, MSME sector too needs urgent focus. Stating that there is a need for amalgamation of CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) and CGFMU (Credit Guarantee Fund for Micro Units), the report said, “This will remove the complexities such as multiple coverage/non-coverage of MSME loans and understanding among field functionaries about various time norms to be adhered to under each guarantee scheme will be eliminated.”

Projections
As per SBI’s research desk projections, the yield curve may edge lower further. The 10 year G-sec yield is likely to be kept below seven per cent (now 6.88 per cent). Eventually it may head towards the range of 6.5 per cent to 6.6 per cent. This will be reflecting more of the growth outcomes rather than the government borrowings, the report said.

 

Emphasis should be on…
Overall, the report said the government’s emphasis should be on making rules that are realistic. “Sticking to a particular fiscal number is not that important in the current scenario. Instead, emphasis should be on making country-mandated fiscal rules that are credible and achievable. For an economy like India, higher public borrowings are a necessary evil given the large welfare schemes of the government,” elaborated the report.

NT Bureau