Debt markets, FII & FPI norms: Key market-related proposals in Budget 2019

In Union Budget, the finance minister has asked SEBI to consider to reduce maximum promoter shareholding from the current level of 75% to 65%.

At a time when the markets are trading close to their lifetime high, the Union Budget 2019 presented by Finance Minister Nirmala Sitharaman announced a host of proposals that aim to broad-base the participation.

Here are the key market-related proposals announced in the Union Budget 2019 today:

PSU Bank recap: Public Sector Banks (PSBs) proposed to be further provided 70,000 crore capital to boost credit. Government to initiate steps to empower accountholders to remedy the current situation in which they do not have control over deposit of cash by others in their accounts. Reforms will also be undertaken to strengthen governance.

Measures for NBFCs: For purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of Rupees 1-lakh crore, or Rs 1 trillion, during the current financial year, Government will provide one time six months' partial credit guarantee to Public Sector Banks for first loss of up to 10 per cent. Regulatory control of RBI over NBFCs to be strengthened.

Promoter shareholding: In Union Budget, finance minister has asked SEBI to consider to reduce maximum promoter shareholding from current level of 75% to 65%. Meaning thereby, minimum public shareholding for listed companies has to be increased from current level of 25% to 35%

“Increase in public shareholding proposed from 25 per cent to 35 per cent potential negative for MNC and companies with high promoters holding. In many mid and small caps, it is better to have more promoter skin in the game, since India's capital market in developing phase. Many MNCs listed on Indian bourses may consider delisting, if increase public shareholding implemented,” said Amar Ambani, president and research head at YES Securities.

Bond markets: An action plan to deepen the market for long term bonds including for deepening markets for corporate bond repos, credit default swaps etc., with specific focus on infrastructure sector, will be put in place. 

It has also been proposed to permit investments made by FIIs/FPIs in debt securities issued by Infrastructure Debt Fund – Non-Bank Finance Companies (IDF-NBFCs) to be transferred/sold to any domestic investor within the specified lock-in period.

Regulatory control over housing finance sector: Proposal to return the regulation authority over the housing finance sector from National Housing Board (NHB) to the RBI. That apart, steps will be taken to separate the NPS Trust from PFRDA with appropriate organisational structure.

PSU divestment target raised: Government is setting an enhanced target of Rs 1,05,000 crore, or Rs 1.05 trillion, of disinvestment receipts for the financial year 2019-20 (FY20).

Government holding in PSUs: Govermnent stake in PSUs can dip below the current mandate of 51 per cent, but will be reviewed on a case-to-case basis. In order to provide additional investment space, the Government would realign its holding in CPSEs, including Banks to permit greater availability of its shares and to improve depth of its market.

Securities Transaction Tax: Relief in levy of Securities Transaction Tax (STT) by restricting it only to the difference between settlement and strike price in case of exercise of options.

Social Stock Exchange: Initiate steps towards creating an electronic fund raising platform – a social stock exchange - under the regulatory ambit of Securities and Exchange Board of India (SEBI) for listing social enterprises and voluntary organizations working for the realization of a social welfare objective so that they can raise capital as equity, debt or as units like a mutual fund.

Inter-operability of RBI depositories and SEBI depositories: The Government to take up necessary measures in this regard in consultation with RBI and SEBI.

Foreign Direct Investment (FDI) proposals: The Government will examine suggestions of further opening up of FDI in aviation, media (animation, AVGC) and insurance sectors in consultation with all stakeholders. 100% FDI will be permitted for insurance intermediaries. Local sourcing norms will be eased for FDI in Single Brand Retail sector.

ReITs and InvITs: Proposal to increase the statutory limit for FPI investment in a company from 24% to sectoral foreign investment limit with option given to the concerned corporates to limit it to a lower threshold. FPIs will be permitted to subscribe to listed debt securities issued by ReITs and InvITs.

Global Investors Meet: The Government is contemplating organizing an annual Global Investors Meet in India, using National Infrastructure Investment Fund (NIIF) as the anchor, to get all the three sets of global players-top industrialists/corporate honchos, top pension / insurance / sovereign wealth funds and top digital technology/venture funds

NRI-Portfolio Investment Scheme: Proposal to merge the NRI-Portfolio Investment Scheme Route with the Foreign Portfolio Investment Route.