Budget 2024: Tomorrow, Finance Minister Sitharaman will present her sixth budget, matching the record set by former Prime Minister Morarji Desai of presenting six consecutive budgets. She will be the second Finance Minister to achieve this feat. Though the Budget will be a vote on account, economists and experts feel the government will maintain its focus on fiscal consolidation, business and taxation law simplification, infrastructure development, support for MSMEs, and financial inclusion.
The banking sector is also expecting some reforms from the finance minister. During the Budget 2023, no allocation was made by FM Sitharaman for the recapitalisation of public sector banks, a signal from the policymakers that the health of these PSBs is in line with expectations. This was done for the second year in a row.
Besides, the Budget Speech 2023 also stated that financial sector regulators would be asked to conduct a thorough evaluation of current regulations, taking into account input from the public and regulated entities. In 2023, the Reserve Bank of India has published several draft regulations for public feedback and actively collaborated with stakeholders.
Here are some of the key expectations that the banking sector for the year 2024-25:
1. Digitalisation and cybersecurity
“The BFSI industry anticipates measures in the Union Budget to promote digitalisation, enhance cybersecurity, address non-performing assets (NPAs) and introduce reforms for financial inclusion. Additionally, stakeholders looking for policies encouraging investments, easing regulatory frameworks and fostering innovation within the sector. More measures to boost economic growth, reforms in taxation, infrastructure development, incentives for key sectors like manufacturing and technology and efforts to address fiscal challenges while ensuring social welfare,” said Narendra Dixit, Head of Retail Banking at CSB Bank.
2. Stressed assets and NPAs
“National Asset Reconstruction Company Limited was created to tackle the issues of stressed assets and NPAs. However, it has seen only limited success so far and suitable policy decisions may be required to boost its activities. To deal with the NPA menace, the finance minister announced the formation of NARCL and India Debt Resolution Company Limited (IDRCL) in the Union Budget 2021. Similarly, a separate institution was set up for infrastructure financing viz NABFID (National Bank for Infrastructure Finance and Development), which has also shown limited results as yet and needs to be suitably pepped up," said Jyoti Prakash Gadia, Director at Resurgent India.
“Though, it would be a vote on account, but focus on infrastructure expenditure and maintaining the profitability of state-owned companies and banks may get some booster dose when the Union Finance Minister Nirmala Sitharaman presents her vote on account in the parliament," said Avinash Gorakshkar, Head of Research at Profitmart Securities.
3. Digital infrastructure and digital payments
"From the interim budget, we expect more well-defined action plans to strengthen digital infrastructure and promote digital payments for deeper financial inclusion. More robust and long-term and clearly defined incentives for the adoption of EVs will also help in the growth of the auto finance sector. The inclusion of EV financing as a priority sector lending shall help and translate to lower cost and increase adoption. At large, fintech players are seeking a GST subsidy to enhance the accessibility of financial services and government benefits. With the fintech market expected to reach INR 11.36 Trn by FY 2028, we are aligned with the growth potential of the fintech sector in India and hope that the government will take steps to support the industry’s growth in the upcoming budget," said Mayank Thatte, Chief Financial Officer, Rupyy.
“In the Union budget 2024-25, the government should further push for initiatives that will focus on boosting adoption of digital payments in tier 2 and beyond regions. Policies should incentivise the creation of a fertile environment for fintech startups to innovate and build products and solutions that will be more inclusive and adaptable for both consumers and businesses. I also expect the introduction of regulatory frameworks that will help curb digital fraud and build a safer and more secure digital payment environment, reinforcing the trust of users in digital transactions. There is a call for the implementation of a standardised know-your-customer (KYC) framework across all financial services, aiming to enhance efficiency and promote financial inclusion, in a secure way,” said Akash Sinha, CEO, Cashfree Payments.
4. Digital adoption and innovation
"A thriving fintech ecosystem is crucial for driving digital adoption and innovation in India. We would like to see policy implementations around regulations, streamlining licensing processes, and offering tax incentives for Fintech startups in the upcoming budget. This will foster a dynamic environment where cutting-edge solutions like AI and Voice can flourish, propelling India's digital transformation," said Kumar Abhishek, CEO & Founder of ToneTag.
5. More reforms for fintechs
“As India sets sight on becoming a US$ 5 trillion economy by 2025, the upcoming Interim Budget offers a timely opportunity to formulate policies that further unlock the potential of fintechs in enabling financial inclusion and powering their growth. I am hopeful that the government will announce measures to increase capital availability for fintechs operating in underserved domains like rural credit, digital payments, and digital lending. Regulations around digital banking, data governance and emerging technologies have fueled the building of sustainable fintech businesses over the last year or so, and I am hoping that the budget will introduce additional measures that can aid credit growth, financial inclusion and digital enablement of financial services," said Nalin Negi, Chief Financial Officer & Interim CEO, BharatPe.
6. Investment for startups
"The investment community eagerly awaits a shift in sentiment toward startup investments following an extended funding winter. The rationalisation of capital gains tax is sought to bolster capital inflows into the flourishing startup landscape, which has attracted a substantial $100 billion over the last six years. Despite apprehensions surrounding recent RBI regulations impacting Alternative Investment Funds (AIF), acknowledging the role of stringent standards in reinforcing the investment ecosystem becomes imperative. A commitment to enhanced regulatory measures, combined with aligning AIF with global standards, serves to fortify the system, a crucial element for maintaining investor enthusiasm," said Siba Panda, Founder and Managing Partner, ValuAble.
“MSMEs are the driving force of India’s economic growth and prosperity. To fully unlock their potential, the upcoming Union Budget should focus on measures that would improve access to liquidity, skill development and ease of doing business for small businesses. The government could also focus on encouraging the use of digital public infrastructure which will help improve access to credit for MSMEs. Digital payments are another crucial link in the formalisation of MSME business operations. Continuing to encourage digital payments will improve the creditworthiness of these MSMEs,” said Arun Nayyar, MD and CEO, NeoGrowth.
“Introducing incentives for FinTechs committed to empowering underprivileged SMEs through financial and technical support would be a much-welcomed move. Additional measures, such as maintaining the profitability of state-owned banks, enhancing credit guarantee schemes for MSMEs, introducing Performance Linked Incentive (PLI) schemes and augmenting subsidies for small businesses, are eagerly anticipated. The financial services industry also expects key announcements pertaining to the management of Non-Performing Assets (NPAs),” said Nirav Choksi, CEO and co-founder, CredAble.
7. Liquidity ease for NBFCs
"We don’t expect major shakeups in the upcoming Interim Budget for FY25. We do, however, hope for measures to support liquidity ease for new-age financial players, particularly non-banking financial companies (NBFCs). Financial support is crucial for further sustained and inclusive growth of NBFCs, which will in turn benefit students struggling to access financial services in remote parts of India,” said Nikunj Agarwal, Head Debt and Lending Alliances, Propelld.
8. Permitting NBFCs to offer credit cards
"Recognition of fintech's role in empowering MSMEs and SMEs, coupled with targeted incentives for Tier 2, 3 and 4 cities, should highlight a strategic push toward lasting financial inclusion. Additionally, the consideration of permitting NBFCs to offer credit cards acknowledges fintech's evolving landscape, showcasing a commitment to adapting to changing financial dynamics will be a big win for the financial sector and the nation,” said Aditya Gupta, Founder and CEO, Credilio.