A clean, reliable and robust financial sector is critical to achieving the vision of India becoming a five trillion economy in the next five years, Finance Minister Nirmala Sitharaman said on Saturday.
"The financial architecture should keep evolving and move from strength to strength," she said while presenting the Union Budget 2020-21 in Parliament.
To unlock private capital, Ms Sitharaman proposed the sale of the government's balance holding in IDBI Bank to private, retail and institutional investors through stock exchanges.
On the back of bank consolidation and capital infusion of Rs 3.5 lakh crore into public sector banks, the Finance Minister said governance reforms will be carried out to make them more competitive, transparent and professional, thereby ensure a robust banking system.
Some public sector banks will also be encouraged to approach the capital market to raise additional capital.
The minister announced that the Deposit Insurance and Credit Guarantee Corporation (DICGC) has been permitted to increase deposit insurance coverage to Rs 5 lakh per depositor from Rs 1 lakh previously.
She said a robust mechanism is in place to monitor the health of all scheduled and commercial banks, and thereby ensure the safety of depositor money.
Cooperative banks and non-banking finance companies (NBFCs) are also important constituents of the financial sector to be strengthened through improved governance. Amendments to the Banking Regulation Act have been proposed to increase professionalism, facilitate access to capital and improve oversight through the Reserve Bank of India (RBI).
Besides, said Ms Sitharaman, the limit for NBFCs to be eligible for debt recovery mechanism via the SARFAESI Act 2002 is proposed to be reduced from existing asset size limits of Rs 500 crore to Rs 100 crore or loan size from existing Rs 1 crore to Rs 50 lakh.
To achieve the aspirational growth rate, the Finance Minister underscored the need to boost the flow of capital in the financial system, through the following measures, taken in consultation with the RBI.
Ms Sitharaman said foreign portfolio investor (FPI) limits in corporate bonds are proposed to be increased to 15 per cent of outstanding stocks from the current 9 per cent.
Specified categories of government securities will be opened fully for non-resident investors along with domestic investors. A new debt-based exchange-traded fund (ETF) consisting primarily of government securities will be floated.
The Finance Minister said a new legislation is proposed for laying down mechanisms for netting of financial contracts. This will improve investor confidence and further expand the scope of credit default swaps.