The budget also proposes the setting up of a national investment and infrastructure fund, which would raise debt and invest in infrastructure finance projects, helping enhance - along with other measures - the ability of infrastructure firms to access funding, Moody`s said.

"By comparison, public sector banks can expect limited near-term relief, with the government allocating a significantly lower amount of capital than in recent years, while proposals to set up a bank board bureau and adopt a new bankruptcy law have the potential to improve governance over time, if implemented effectively," said Srikanth Vadlamani, a Moody`s vice president and senior credit officer.

According to Moody`s, the budget`s implications for the banks are mixed, noting - for example - that their capital allocation for fiscal 2016 is lower than fiscal 2015.

However, the government proposes to improve governance and set up an autonomous bank board bureau, which would help public sector banks in areas such as management quality and strategy.

The proposed introduction of a new bankruptcy law would also be credit positive. The current weak bankruptcy framework has been a major impediment for banks in enforcing credit rights. Few details on the new law are currently available.

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