Union Budget 2025-26 and India Post

The Union Budget 2025-26 is anticipated to include an additional financial package aimed at transforming India Post into a more customer-centric and digitized logistics organization, according to a government official.

Financial Discussions and Allocations

• Recent high-level meetings between the ministries of finance and communications discussed India Post's capital expenditure requirements.
• The Finance Ministry allocated Rs 25,378 crore to the Department of Post (DoP) for 2024-25, a 1.68% decrease from the previous year's Rs 25,814 crore allocation but a 21% increase from the 2022-23 allocation.

Infrastructure Development and Customer Satisfaction

The support aims to build relevant infrastructure and ensure customer satisfaction through effective services. The government remains optimistic about India Post's growth despite not specifying the quantum of additional assistance.

Expansion of Banking Services

• Union Finance Minister  announced plans to expand banking services in the northeastern states with over 100 new branches of India Post Payments Bank (IPPB).
• IPPB, launched in 2018 with 100% government equity, saw 26.8 million accounts opened in the current year, with 59% held by women and 77% located in rural India.

Government Schemes and Mandates

• IPPB supports various government schemes like MGNREGA, PM Kisan, Pahal, and others.
• Received mandates from major government agencies including Employees Provident Fund Organisation and Reserve Bank of India.

Expenditure Breakdown

• DoP's actual expenditure was Rs 22,015 crore in 2022-23, and revised expenditure was Rs 24,389 crore in 2023-24.
• Revenue expenditure, mainly for salaries and pensions, comprises over 95% of the budget at Rs 24,115 crore.
• Remaining Rs 1,262 crore allocated for capital expenditure, primarily on IT modernization (Rs 748 crore) and IPPB (Rs 250 crore).

Additional Industry Insights

• Industry seeks tax relief, capex boost, and reforms at pre-budget meetings.
• CII calls for a reduction in fuel excise and suggests consumption vouchers to boost demand.
• Reports indicate potential income tax rate cuts to enhance consumption.
• Steel ministry suggests increased customs duty to counter Chinese market threats.
• NATHEALTH urges the government to address healthcare gaps in the upcoming Budget.

Consumption Expenditure Growth in Sikkim and Meghalaya

Rural and urban regions of the northeastern states of India, particularly Sikkim and Meghalaya, have witnessed a notable increase in the Monthly Per Capita Consumption Expenditure (MPCE) during August 2023-July 2024.

Key Growth Statistics

• Rural Sikkim:
  • MPCE grew by 21.3% to reach Rs 9,377.
• Rural Tripura:
  • Growth of 20.2%.
• Rural Nagaland:
  • Growth of 17.4%.
• Rural Mizoram:
  • Growth of 14.2%.
• Urban Meghalaya:
  • MPCE increased by 21.9% to Rs 7,839.
• Urban Manipur:
  • Growth of 21.8%.
• Urban Sikkim:
  • Growth of 15.1%.

Consumption Inequality Reduction

The Gini coefficient, an indicator of income and consumption inequality, has shown a reduction:

• Rural Areas: Dropped from 0.266 in 2022-23 to 0.237 in 2023-24.
• Urban Areas: Reduced from 0.314 in 2022-23 to 0.284 in 2023-24.

Additional Insights

• Concerns have been raised by the RBI regarding the negative impact of crypto assets on financial stability.
• Stress in the microfinance sector has notably doubled from April to September, according to the RBI.
• The RBI Governor expressed high confidence in the economy's outlook.
• There is a flagged risk of secured loans due to slippages in smaller personal loans by the RBI.
• External debt has risen to $711.8 billion, marking a 4.3% increase from June, as reported by the Finance Ministry.

RBI Financial Stability Report on NBFCs

Loan Growth Moderation

• Loan growth of shadow banks moderated to 6.5% on a half year-on-half year basis by September 2024.
• Significant impact seen in upper-layer NBFCs, especially in NBFC-Investment credit companies, with 63.8% retail lending.
• Middle-layer NBFCs, excluding government-owned ones, showed robust growth in retail loan portfolios.

Credit Growth and Funding Sources

• Overall credit growth slowed to 16% from 22.1% year-on-year.
• Bank funding for upper-layer NBFCs dropped to 34.6% and for middle-layer NBFCs to 26.3%.
• NBFCs are turning to the bond market, especially private placements, and increasing foreign currency borrowings.

Cost and Risk Implications

• Growth in bank borrowings in NBFCs' liabilities fell from 26% to 17%, raising their cost of funds.
• RBI cautions that increased foreign currency borrowings could pose currency risks if unhedged.

Sector Health and Vulnerabilities

• NBFC sector remains healthy with strong capital buffers, robust interest margins, and improving asset quality.
• Write-offs are rising, with some NBFCs showing significantly higher write-offs.
• Upper-layer NBFCs are more vulnerable to liquidity issues due to higher short-term liabilities.

Stress Test Findings

• RBI's stress test on 162 NBFCs estimated a future GNPA ratio of 3.4% with a CRAR of 21.2%.
• Eleven NBFCs may fall below the minimum CRAR requirement of 15% under baseline conditions.
• CRAR may reduce by 70-100 basis points under medium to high-risk scenarios due to income losses and additional provisioning.

Liquidity Resilience

• One-year liquidity mismatch is expected to stay within 20%, but some NBFCs may experience higher mismatches under stress.