Major banking sector reforms are postponed in India's 2024 budget plan, putting pressure on bank stocks

On July 23, all bank stocks except Federal Bank sank into a sea of red because no major reforms to the banking sector were announced in the 2024 budget. Shares of Axis Bank, ICICI Bank, HDFC Bank, SBI Bank, Bank of Baroda, and Indus India fell 1%.

Investors expected announcements regarding government bank consolidation, divestment measures, and recapitalization efforts in pre-budget discussions, but these measures were not taken up.

However, the budget plan outlined an integrated technology platform to enhance bankruptcy and bankruptcy law (IBC) outcomes, and aimed to improve consistency, transparency, timely processing, and monitoring for all stakeholders.

“IBC has settled over 1,000 companies and brought direct recovery of over 3.3 rupees to creditors. Also, 28,000 cases over 10,000 million rupees were resolved before approval. Finance Minister Nirmala Sitharaman said, “We will embark on appropriate IBC changes and reforms to strengthen courts and appellate hearings in order to speed up bankruptcy processing.”

Also, reforms and enhancements to debt collection courts were announced.

In the 2021 budget, the privatization of several public sector banks (PSB) was announced as part of non-investment activities aimed at raising funds of 1 trillion750 billion rupees. In addition to IDBI Bank, privatization of two PSBs and one general insurance company was included.

Currently, banks in India are very healthy. Gross non-performing loans (NPA) declined to 2.8% in fiscal year 24, which is the lowest level in 12 years. Net non-performing loans are at a historically low level of 0.6%. The balance sheet was the healthiest in the past 10 years, and profits recovered rapidly and quadrupled in 10 years.

India's banking sector's return on equity (ROE) is 15%, the highest since fiscal year 2011. The rate of increase in lending in the banking sector has risen from a 10-year average of 10% to 15% over the past two years.