Budget 2022: 5 key expectations of the banking and financial sector
Since the outbreak of the COVID-19 pandemic, India’s banking and financial sector has taken cautious and calibrated steps to stabilize various sectors and support them in their growth efforts.
Over time, the Indian financial sector has diversified into several segments, from commercial banks to non-bank financial companies (NBFCs) and fintech players.
Each financial segment is growing stronger and stronger. So much so that if commercial banks hold more than 64% of total assets, the new era fintech industry is expected to reach $160 billion by 2025.
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It is this diversification that has infused immense capabilities in the sector to design innovative financial products and offerings while serving people of all socio-economic strata and businesses amid unprecedented global disruption spanning more than two years.
With the influences of COVID continuing into 2022, financial institutions are eagerly awaiting the upcoming budget in anticipation of bold policy moves that will further bolster the health of the sector and enable them to support the country’s journey towards Atmanirbhar Bharat.
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Here are some of the key industry expectations for the 2022 budget:-
- Increase the ceiling for foreign direct investment (FDI). The banking and financial sector expects the limit on foreign direct investment (FDI) in public sector banks (PSBs) to be raised by 54% from the current limit of 20%. This would put PSBs on par with private banks where 74% FDI is already allowed. This decision will further strengthen the health of public banks and create a more level playing field for both sectors.
- Reduce state ownership in public sector banks. The government should make more policy and regulatory changes aimed at reducing sovereign ownership in PSOs and accelerating the privatization of public banks.
- Tax incentives for the banking sector. The sector hopes for favorable incentives for the banking industry in the form of tax reductions, subsidies or reimbursement of certain costs. In addition, tax exemption for online transactions at cooperative banks will boost cashless payments.
- Fintech and NBFC friendly policies. Both sectors are eagerly awaiting a relaxed tax regime to facilitate financial liquidity. They also hope for the establishment of more favorable compliance policies that would allow them to support MSMEs that are not yet active in the folds of institutionalized banking.
- Technological development and R&D. The banking sector was driven by technological advances and strong R&D. Fintechs and technology start-ups aim to invest more in R&D in order to create new products and expand into new markets. In the digital era, institutions are eagerly awaiting the development of progressive and supportive policies to encourage the development and deployment of new era technologies in banking and finance.
(The author is Executive Chairman, Religare Enterprises Limited.)