Budget 2017 NPA provisioning unlikely to benefit banking funds

The increased provisioning of Non-Performing Assets (NPAs) of banks proposed in the budget is unlikely to change the fortunes of banking funds, said Amit Premchandani, fund manger, UTI Banking Sector Fund.

The finance minister has proposed to increase allowable provision for Non-Performing Asset of banks from 7.5 per cent to 8.5 per cent. Interest taxable on actual receipt instead of accrual basis in respect of NPA accounts of all non-scheduled cooperative banks also to be treated at par with scheduled banks, the finance minister said.

"This increase from 7.5 per cent to 8.5 per cent is not major because if you look at the effective tax rate, it will not move too much in the current environment for the banks," said Premchandani. "It may reduce the effective tax rate by merely 1 per cent. It doesn’t change the landscape of the sector and sector funds. This is our assessment as of now," he added.


However, he believes that the budget may indirectly benefit the banking sector. "The fiscal deficit is 3.2 per cent, so the net borrowing will be under control. All these are indirect benefits. The focus of the budget was macro-stability rather than populism which is positive for banks," Premchandani said.