Chidambaram's budget has not caused much cheer among bankers. The budget is silent on disinvestment in PSBs. It does not have anything new to mention about the consolidation of PSBs either. There are, however, new guidelines for foreign banks with regard to their entry and expansion, in consonance with the WTO provisions. PSBs have to be more actively involved in social lending. The cash withdrawal tax will prove to be a vexatious levy from the bankers' viewpoint.

Chidambaram's Union Budget 2005 evoked mixed reactions from various quarters. The Left Front is happy, as the budget makes promises of huge social spending. The reformists are disappointed that the pause button has been pushed with regard to critical banking reforms. But, there are certain tax cuts and some deregulation measures and assurances to further liberalize the economy. The budget obviously reflects the imperatives of a multi-party coalition whose constituents hold very divergent views on major economic challenges.

The budget proposes to identify Micro-finance Institutions (MFIs), classify, rate and empower them to intermediate between lending banks and beneficiaries. The Micro-finance Development and Equity Fund will have an enhanced corpus of Rs. 200 cr. Further, qualified NGOs in micro-finance activities will be permitted to access External Commercial Borrowing (ECB).

On February 28, the RBI had come out with its revised policy decisions regarding the entry and expansion of new banks and consolidation among the domestic banks. The Finance Minister, in his budget speech said, "It is universally acknowledged that the key drivers of the banking sector in the future will be competition consolidation and convergence." However, it is evident that the union government now proposes to carry on the mission of banking reforms through the RBI, by confining itself to the role of a facilitator, enacting the necessary legislative amendments.

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