Among other things, the budget is also likely to make a provision of Rs 1,400 crore to recapitalise Indian Bank and make mention about introduction of a voluntary retirement scheme (VRS) to slash flab in the banking industry. It is also likely to announce setting up of an asset reconstruction company (ARC) to tackle the problem of non-performing assets (NPAs).

The budget is also likely to send a strong signal for a low interest rate regime. The central bank, however, is likely to postpone the bank-rate cut to the first week of April to protect the bottom lines of the state-run banks.

"Even though the RBI wants to signal a low interest rate regime, the bank-rate cut is expected to be put on hold till thebeginning of the next financial year. The central bank, however, may not wait till the slack season credit policy for effecting the cut and instead announce it in the beginning of April," a source close to the RBI said.

"Reducing the bank rate does not necessarily mean that banks should follow suit by slashing their prime lending rates. Reducing the PLR has to be linked to entire spectrum of interest rates," a senior banker said.

"Our bank will take a decision on revising interest rates based on how our profit & loss account supports the reduction. Reducing interest rates is not possible without adequate support from the RBI," Dena Bank chairman and managing director Ramesh Mishra said. Bankers are piqued over lack of a level playing field, while competing with equity linked mutual funds.