Union budget 2011-12 is positive for public sector bank in term of recapitalization. The Finance Minister proposed to provide capital infusion of Rs. 6000cr in public sector banks (PSBs) to maintain Tier-I capital to CRAR at 8%. The finance minister proposed to raise the target of credit flow to farmers to Rs. 475000cr in FY2011-12 as against of Rs. 375000cr in FY2010-11. This move will be increase the NPAs of the PSBs. The FM proposed to bring suitable legislative amendments in the regards of more banking license to private player and NBFCs for the FY 2011-12. RBI is planning to issue the guidelines for banking licences for the financial year 2011-12. The FM proposed to enhance the additional subvention to 3% in 2011-12. It would be negative for PSB in term of net interest margin.

PHARMA INDUSTRY-NEUTRAL

In Budget 2011-12, Government didn’t focus to reduce healthcare cost as they made no proposals on reducing excise duty, tax holiday on healthcare infrastructure and weighted deduction for expenses incurred outside R&D facility like overseas trials, preparations of dossiers, consulting & legal fees on healthcare and pharmaceutical sector. It also not extended the list of life saving drugs. However, FM proposed to step up the plan allocations for Healthcare in 2011-12 by 20% to Rs. 26,760 crore as against Rs 22,300 crore in 2010-11. Further, by considering the need of the industry for Innovation, it enhanced the weighted deduction on payments made to National Laboratories, universities and Institutes of technology, for scientific research, from 175% to 200%.

Increase in the rate of MAT to 18.5% from the current 18% and inclusion of units operating in SEZs under MAT would negatively impact companies which presently have or are planning to set up manufacturing units in SEZs. There were also no indications on the extension of the EOU benefit which is available only till FY2011, which could be a negative for the sector.

FERTILIZERS INDUSTRY-POSITIVE

Fertilizer remains a prominent sector in Budget 2011-12. Government proposed to include capital investment in fertilizer production as an infrastructure sub-sector as the sector requires higher capital. Also, to ensure greater efficiency, cost effectiveness and better delivery for fertilizers, the Government proposes that it will take move towards direct transfer of cash subsidy to people living below poverty line in a phased manner.

Urea is the key focus in the industry, which represents around 50% of all fertilizer products consumed in the country with an annual consumption of 27mt of a total fertilizer consumption of 55mt. During the year 2010-11, the Nutrient Based Subsidy (NBS) policy was successfully implemented for all fertilizers except urea. Thus, government proposes active consideration of the Urea under the extension of the NBS regime. This is a positive move by the government and will benefit both farmers and companies in the industry.