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Indian Budget 2003-2004>  Key Highlights

Banking, Finance & Insurance Sector

Government has hiked foreign direct investment ceiling in the banking sector from 49 per cent to 74 per cent to enable global banks to set up shop in India. This will facilitate the setting up of subsidiaries by foreign banks as well as for inviting investment in private banks. Further, Banking Regulation Act of 1949 would be amended to remove the restriction of 10 per cent voting right irrespective of the shareholding.

Banking Act will be amended to allow M&As in PSU banks. Mergers and Acquisitions in the banking sector will now be extended tax exemption under Section 72A of Income Tax Act to banks which intend to go for M&As.

The government would also come up with legislations to enable smooth functioning of the Credit Information Bureau set up to address the menace of non-performing assets of banks. The government also directed all banks to extend credit to agriculture and SSI sectors at a band of two per cent below and above prime lending rates.

In line with one per cent cut in interest rate on small savings scheme and PPF in the Union Budget, the Reserve Bank of India today announced a 0.5% reduction in interest rate on saving account to 3.5 per cent.The apex bank has also slashed the repo rate to five per cent from existing 5.5%.

Budget has announced that dividend received from MFs will not be taxed in the hands of investors. Instead, MFs will be paying only a 12.5% dividend distribution tax. For equity-oriented schemes, even this distribution tax will not be applicable for a year. MFs will benefit from both dividend tax and capital gains tax relaxation. On the fixed income side, apart from the reduction in interest rates on small and contractual savings instruments, the market will benefit from the government proposal to buy back high coupon debt from the market.

Government has proposed development of universal health insurance scheme at cost of Re 1 rupee a day for individuals, Rs 1.50 for a family of five, Rs 2 for family of seven.

Life Insurance Corporation (LIC) would launch a special pension policy for senior citizens titled "Varishta Pension Bima Yojana" with an annual return of nine per cent in the form of a monthly pension scheme.

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