Sabyasachi Chakraverty, Teamlease Services
As we approach the fiscal budget for 2019-2020, there are major expectations from the government to bring reforms across sectors, especially as 2019 marks the election year. BFSI sector that has seen major changes in the current regime and most of the BFSI industry bodies have shared list of expectations with the finance ministry to boost growth.
• Rationalisation of taxes in banking sector
• SOPs & alternate mechanism for KYC for FinTech / Payment banks
• Exemption of DRR in the HFC Space
• FinTech Start-ups seek ease in borrowings, P2P loans
• Better Credit supply & Tax benefit to MSMEs & Shadow banks
• Positive tax benefits, regulatory framework for the Insurance Sector
In the coming Budget, we foresee individual tax exemption threshold to almost double (As per CII recommendations) & higher deduction under 80C which will boost demand in the economy. Focus will continue to be on credit / Liquidity & Tax benefit to MSMEs & Shadow banks.
We look forward to a budget that supports economic growth through strategic investments in infrastructure. Budget needs to focus on rural projects to generate a multiplier effect in terms of job creation. Thrust on higher income in the hands of the financially excluded and provide opportunities to MSME segments. Tax sops to the salaried class to drive in investment and to corporates to promote capital investments. Support to the marginal and small farmers through warehousing, insurance, technical support, irrigation facilities and price support, instead of loan waivers. Passing on the benefits of fuel price cuts. Govt to work with RBI to reduce the effective real rate of interest which today is the highest in the world.
Today, leading NBFCs draw power from cutting-edge technologies such as AI. Their advanced approach has enabled them to decrease their TAT (turnaround time) in loan processing while also ensuring that the NPAs remain considerably low and diminish progressively. NBFCs have increased their overall market share in MSME credit by around 17% YoY till a mid-last year, whereas private sector bank’s share only increased by 6.4% and public sector bank’s decreased by around 9%. Similar results can be seen in consumer credit. Having said that, we strongly believe that the budget should have some subsidies for the MSME segment and credit support to enable them to continue growing and borrow effectively for that. It will help in bridging the prevailing credit gap and acquaint our nation with experience superior growth rate while tangibly increasing the employment opportunities.
Over the last 2-3 years, the banking sector in India has been going through a difficult phase. Provisioning for Non-Performing Assets (NPAs) had pulled down the banking sector into losses in FY18 and also has eroded lending ability of several banks, in turn affecting the credit supply This has necessitated the government action in the form of recapitalisation of Public Sector Banks (PSUs) along with other qualitative measures. As a result of prompt corrective measures taken by the RBI and the government, gross NPAs have declined from 11.5% in March 2018 to 10.8% in September 2018. Credit growth has picked up in the up. Further, concerns about asset-liability mismatches in the NBFC sector are being proactively addressed. Given this scenario, we have formed our expectations from the Union Budget.
- The Long-Term Capital Gain (LTCG), Security Transaction Tax (STT) Dividend Distribution Tax (DDT) result in triple taxation of corporate earnings that are distributed. This has led companies to favour debt capital over equity capital. Given the high NPA levels, the Union Budget 2019-20 is likely to announce measures towards the rationalisation of these taxes so that corporates can move towards equity capital.
- The barring of private companies from using Aadhaar for KYC authentication has increased compliance cost. We expect the budget to provide some incentives to the BFSI industry to come up with alternate mechanism to authenticate their customers online. Further, we also expect the government to propose plans for centralisation of compliance processes in order to lower compliance costs.
- Given that Prompt Corrective Action (PCA) framework has set certain thresholds in terms of capital, asset quality and profitability for weaker banks, these banks might require further capital infusion in order to help them meet their regulatory capital norms. Hence, in the Union Budget, the government is expected to propose further bank recapitalization plan.
- Given the distress in the farm sector, we expect that the government might propose farm loan interest waiver for farmers who repay loan on time.
- To address the issues in the NBFC segment, we expect the Government to set up a committee which would suggest an action plan. There is a lack of a single data repository and a systemic risk mapping for the entire segment is absent. A common comprehensive database for sharing of information and joint analysis by relevant authorities covering the entire NBFC segment can help map the risk of contagion and common emerging risks.