Budget Provisions: After significant capital infusion through issuance of special securities to public sector banks during last few years, the government has not made any allocation for recapitalization of public sector banks for FY2023. The amount for recapitalization through issue of special securities has been reduced to Rs 15000 crore for FY2022 in revised estimates against the budget allocation of Rs 20000 crore as per budget estimate. The recapitalization amount for public sector banks is nil for FY2023. Since 2014, the government has infused Rs 3.43 lakh crore in PSBs The National Bank for Financing Infrastructure and Development (NaBFID) and National Asset Reconstruction Company have commenced their activities. Necessary amendments in the Insolvency and Bankruptcy Code will be carried out to enhance the efficacy of the resolution process and facilitate cross border insolvency resolution.

Emergency Credit Line Guarantee Scheme (ECLGS) has provided much-needed additional credit to more than 130 lakh MSMEs. This has helped them mitigate the adverse impact of the pandemic. The hospitality and related services, especially those by micro and small enterprises, are yet to regain their pre-pandemic level of business. Considering these aspects, the ECLGS will be extended up to March 2023 and its guarantee cover will be expanded by Rs 50000 crore to total cover of Rs 5 lakh crore, with the additional amount being earmarked exclusively for the hospitality and related enterprises.

Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme will be revamped with required infusion of funds. This will facilitate additional credit of Rs 2 lakh crore for Micro and Small Enterprises and expand employment opportunities.

In 2022, 100% of 1.5 lakh post offices will come on the core banking system enabling financial inclusion and access to accounts through net banking, mobile banking, ATMs, and also provide online transfer of funds between post office accounts and bank accounts. This will be helpful, especially for farmers and senior citizens in rural areas, enabling interoperability and financial inclusion.

In recent years, digital banking, digital payments and fintech innovations have grown at a rapid pace in the country. Government is continuously encouraging these sectors to ensure that the benefits of digital banking reach every nook and corner of the country in a consumer-friendly manner. Taking forward this agenda, and to mark 75 years of our independence, it is proposed to set up 75 Digital Banking Units (DBUs) in 75 districts of the country by Scheduled Commercial Banks.

The financial support for digital payment ecosystem announced in the previous Budget will continue in 2022-23. This will encourage further adoption of digital payments. There will also be a focus to promote use of payment platforms that are economical and user friendly.

Introduction of Central Bank Digital Currency (CBDC) will give a big boost to digital economy. Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23.

Agriculture credit target is set at Rs 16.5 lakh crore for FY2022 and raised to Rs 18.0 lakh crore in FY2023

For 2022-23, the allocation is Rs 1 lakh crore to assist the states in catalysing overall investments in the economy. These fifty-year interest free loans are over and above the normal borrowings allowed to the states.

In 2022-23, the states will be allowed a fiscal deficit of 4% of GSDP of which 0.5% will be tied to power sector reforms, for which the conditions have already been communicated in 2021-22.

The revised Fiscal Deficit in FY2022 is estimated at 6.9% of GDP as against 6.8% projected in the Budget Estimates. The Fiscal Deficit in 2022-23 is estimated at 6.4% of GDP, and aims to reduce fiscal deficit below 4.5% by 2025-26.

Taking forward efforts to further promote the IFSC, its proposed to provide that income of a non-resident from offshore derivative instruments, or over the counter derivatives issued by an offshore banking unit, income from royalty and interest on account of lease of ship and income received from portfolio management services in IFSC shall be exempt from tax, subject to specified conditions

As a part of the government's overall market borrowings in 2022-23, sovereign Green Bonds will be issued for mobilizing resources for green infrastructure. The proceeds will be deployed in public sector projects which help in reducing the carbon intensity of the economy.

The procurement of wheat in Rabi 2021-22 and the estimated procurement of paddy in Kharif 2021-22 will cover 1208 lakh metric tonnes of wheat and paddy from 163 lakh farmers, and Rs 2.37 lakh crore direct payment of MSP value to their accounts.

The government has planned market borrowings through dated securities at Rs 14.95 lakh crore in FY2023 compared with Rs 10.465 lakh crore for FY2022 and Rs 12.60 lakh crore in FY2021. The net borrowings for FY2023 stands at Rs 11.19 lakh crore net of repayments of Rs 3.76 lakh crore compared with Rs 7.76 lakh crore in FY2022 and Rs 10.33 lakh crore in FY2021. The revised estimate for net and gross market borrowings for FY2022 is substantially lower than budget estimate of Rs 9.25 lakh crore and 12.05 lakh crore mainly on account of higher inflows from small saving funds at Rs 5.92 lakh crore in FY2022 revised estimate against budget estimate of Rs 3.92 lakh crore.

Stocks to watch

State Bank of India, Bank of Baroda, Union Bank of India, Axis Bank, ICICI Bank, HDFC Bank

Outlook

The more credit lines for MSMEs, introduction of the central bank digital currency, digital banking push and amendments to strengthen the bankruptcy law have been major announcements for the banking sector. The Union Budget 2022-23 has not made any allocation of recapitalization funds for public sector banks as the asset quality stress is reducing for the banking sector and they are able to raise funds on their own. The impact of proposal to launch a digital currency on banking sector and their deposits needs to be watched.