Budget 2024: Banking stocks decline post announcement of the Union Budget 2024!
The 2024 budget has introduced several key initiatives aimed at bolstering the banking sector in India, particularly focusing on expanding banking services and enhancing credit accessibility for MSMEs.
The 2024 budget has introduced several key initiatives aimed at bolstering the banking sector in India, particularly focusing on expanding banking services in the North-Eastern region and enhancing credit accessibility for MSMEs. These measures are designed to promote financial inclusion, rural development, and support for small industries, thereby fostering overall economic growth.
Bank Branches in North-Eastern Region:
To expand banking services in the North-Eastern region, over 100 branches of India Post Payment Bank will be established. This initiative is part of a larger provision of Rs 2.66 lakh crore allocated for rural development, including rural infrastructure, highlighting the government's commitment to enhancing financial services in underserved areas.
Credit Guarantee Scheme for MSMEs in the Manufacturing Sector:
A new credit guarantee scheme will be introduced to facilitate term loans for MSMEs to purchase machinery and equipment without collateral or third-party guarantees. The scheme will pool credit risks and provide each applicant with a guarantee cover of up to Rs 100 crore through a self-financing guarantee fund. Borrowers will need to pay an upfront and an annual guarantee fee on the reducing loan balance.
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New Assessment Model for MSME Credit:
Public sector banks will develop in-house capabilities to assess MSMEs for credit, moving away from reliance on external assessments. This new model will score MSMEs based on their digital footprints rather than traditional asset or turnover criteria, enabling credit access for MSMEs without formal accounting systems.
SIDBI Branches in MSME Clusters:
The Small Industries Development Bank of India (SIDBI) will open new branches to better serve MSME clusters. With the addition of 24 new branches this year, SIDBI's service coverage will expand to 168 out of 242 major clusters, providing direct credit and support to MSMEs over the next three years.
Conclusion:
The 2024 budget's focus on expanding banking services in the North-Eastern region and enhancing credit support for MSMEs underscores the government's commitment to financial inclusion and economic development. These initiatives are expected to significantly improve access to banking services and credit for underserved regions and small industries, fostering sustainable growth and development across the country.
However, except for Kotak Bank and Federal Bank, all banking stocks plunged into the red on July 23, following the 2024 Budget's lack of major sector reforms. Shares of Axis Bank, ICICI Bank, HDFC Bank, SBI, Bank of Baroda, and IndusInd Bank fell by up to 1 per cent. Investors had anticipated announcements on government-owned bank consolidation, divestment strategies, or recapitalization efforts, but these were not included in the budget.