Budget 2022-23: Banking, NEO Bank & NBFC Sector Expectations

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Banking, Neo Bank & NBFCs sector expectations from Budget 2022: As Union Finance Minister Nirmala Sitharaman is all set to present her third Union Budget on February 1, 2022.

Here’s what the Banking, Neo Banks & NBFC, Finance sector experts expects from Finance Minister Nirmala Sitharaman:

Shachindra Nath, Executive Chairman and Managing Director, U GRO Capital:

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In the past few years, operationally nimble and technologically oriented NBFCs and Fintechs have deepened credit penetration to the underserved regions of the country.

Hence, in the upcoming budget, policymakers should provide due consideration to boost liquidity support to the NBFCs as well as encourage frameworks like co-lending, which will greatly boost the reach of financial institutions and progress in the financial inclusion imperative.

EASE 4.0 talks about Co – Lending between Banks and NBFC as a means to increase the credit penetration, however the treatment of Tax Deduction at Source (TDS) treatment for NBFC and Banks are different and that is proving to be a major operational challenge to accelerate credit. It is expected that TDS rules would be harmonised between Banks and NBFCs.

Dilip Modi, Founder, Spice Money:

The fintech industry has fared really well in the last two years with the pandemic playing a key role in the digital adoption of financial services across the country. With the government making strides through several initiatives including the recently set up Fintech Department and the introduction of Payment Investment Development Fund (PIDF), the sector is expecting to see more opportunities and initiatives being taken forward by the government that will help in the expansion of the market, influence customer behaviour, and impact long term changes in the financial industry. 

As our country sets upon the goal of hitting the $5-trillion mark by 2025, I expect the digital economy to grow even further, with a majority of India’s population and small businesses adopting digital means to access payments and financial services.

The rural sector will play a huge part in achieving this economic landmark, and the upcoming Union Budget 2022-23 should ensure there’s a special focus on bolstering rural development. Exemptions on procurement of point of sale terminals, GST rates for rural banking agents remitting funds among households, and subsidies to compensate for merchant discount rate (MDR) waiver are among some of the measures that will help in promoting digital awareness and initiatives across the country.

Mukund Rao, Co-Founder, muvin:

Neobanks are still a relatively new construct in India but will take on significant importance in the years to come. The support from the Government will certainly play a crucial role. On the lending side in particular, the guidelines being envisaged by the RBI around digital lending will bring about some much needed transparency for consumers. The Niti Ayog recommendations on establishing a framework for Digital Banks will help neobanks to potentially transition from being pure technology and customer acquisition layer to a full fledged digital bank. This in turn will open up massive opportunities to offer very customized and tailored offerings to both retail and enterprise customers in the country. KYC requirements can be further streamlined- clear guidance could be provided on Aadhar based KYC with OTP. Furthermore, incentives should be provided for Video KYC as an on-boarding option. I believe that remote onboarding initiatives especially in the current pandemic situation would be key to further drive adoption of fintech platforms.

Neobanks are driving a high amount of financial inclusion and awareness especially amongst the underbanked segment in India. Public-private partnership programmes will further help to broaden reach and take these initiatives to the masses. Suitable grants and tax incentives can be provided to encourage such efforts that have an impact at a grassroots level. The RBI had a strong financial literacy agenda in 2021 and this should continue into 2022 by partnering extensively with FinTechs. Ideally a working committee, with participation from Industry experts, fintech executives and banking executives, should be established at a central level with regional chapters to drive financial inclusion and awareness in a sustainable manner.

Nirav Choksi, Co-founder & CEO, CredAble:

2021 was a year of a record number of tech startup IPOs and unicorns in India. We are optimistic that Budget 2022 will have a renewed focus on startups considering how India is now third in the unicorn race, replacing the UK. With the last budget allowing an exemption of capital gains for investment till March 31, 2022 — this year we are expecting incentives and policy measures that will relax the tax burdens on the sector, increase access to credit and create an investor-friendly ecosystem.

Last year we saw the Indian startup sector skyrocket with a 3x increase in the total funding. Even with rising unicorns, one of the biggest challenges that we see today is that the startup ecosystem as a whole lacks a compelling revenue base. There is an urgent need to infuse cash flow into the startup ecosystem. Additionally, tax exemptions in FDIs would be a welcomed move that will further aid in the globalization of these startups.

Bhavin Patel, Co-founder & CEO, LenDenClub:

The economy is projected to gradually return to its previous trajectory, with fiscal priorities in the upcoming budget invigorating it. A regulatory body to oversee payment recovery is the need of the hour. An enhanced procedural aid to the legal recovery of repayments from digital borrowers to further protect the rights of those who lend money. Such a specialized government vehicle to oversee fintech could not only help startups run more effectively, following compliance requirements, but it would eliminate possible fraudsters. Returns from investments in Peer-to-Peer (P2P) Lending could be exempted from tax under Section 80C of Income Tax law, or a different provision could be carved out to reduce tax rates such as tax exemption for gains below Rs 20,000. This will encourage people across geographies to invest in P2P lending, making funds accessible on multiple platforms. P2P lending plays a significant role in empowering small businesses in India. Tax benefits in P2P lending will magnify the growth of businesses when capital from P2P platforms is diverted to the sector.

The pandemic has resulted in significant job losses, primarily due to people’s inability to keep up with evolving technology. The way the government is spreading awareness is remarkable. Further to that, setting up avenues for advanced technical education, for instance, could help it drive so much further. Presently, India requires professionals with technical and financial competence to conduct the Fintech revolution. More institutions that provide formal education and certifications are needed to create a skilled group of individuals required to grow P2P lending platforms and the Fintech industry.

Sumit Gwalani, Co-founder, Fi:

This year’s budget offers an opportunity to shrug off the impact of the third wave and push the economy towards higher growth. Throughout the last year, we’ve seen that more individuals are keen to take part in India’s capital market success. To enable them, digital infrastructure for financial services from banking and payments to credit, investment, and wealth management needs to reach the last mile. While the Reserve Bank of India has set the regulatory ball rolling for innovations like UPI and Account Aggregator, the Budget can encourage the uptake of these technologies in the financial sector through partnerships with digital service providers either by direct funding or tax incentives. The government has taken strides towards financial inclusion through the implementation of the JAM trinity concept. This in combination with regulatory support in the form of digital banking licences, fintechs can play a major role in India’s growth trajectory.

Ashraf Rizvi, Founder & CEO, Gilded:

Gold has always been an important part of savings/ investment/ wealth portfolios not only in India but also across the world. In India, however, investment in gold is as much a cultural phenomenon as it is a financial one. This cultural tradition has adapted to the times with the introduction of digital gold. This new, convenient, and safer way to access physical gold has seen increased investments from new-age first-time investors. Millennial and Gen Z age categories undoubtedly take to this storage-proof, quality-assured, easy-to-transact new-age asset. Multiple wealth-tech applications have come to the fore, highlighting the growing need for a progressive regulatory framework for this asset class.

While gold has been a stable store of value with positive returns over the historical long term, the future demand for the digital alternative will depend in no small part on government regulations and policies. The Union Budget should be looking at formulating transparent guidelines for investor protection and chalking out a clearly defined regulatory framework consistent with other parts of the gold industry. Currently, capital gains on profits from the sale of gold can be as high as 20% compared to profits on shares taxed at 10%.

An alignment among the tax regimes for investments would give investors greater flexibility in choosing the assets that best fit their needs as a store of value and foundation for wealth creation. Increasingly, the world will look for fast, efficient, cost-effective, and environmentally friendly ways to assign and move value without excessive paperwork or the need to transport physical objects. Digital gold is an essential first step in this technological evolution. The Union Budget 2022 can bring in proper regulatory guidance, framework, and business incentives, and pave the way for India to become a leader in developing the capabilities, technology, and infrastructure necessary to digitize physical gold assets.

Pallavi Shrivastava, Co-Founder & Director, Progcap:

Covid wave acted as the ‘Chief Formulation Officer’ for the Fintech sector, driving the financial ecosystem towards digital solutions while bringing better efficiencies and control . As a lookout to budget 2022 we expect a strong mandate towards the lending NBFC’s which are working towards empowering the under-served SMBs through financial  and technology interventions. 

Also, we expect a few relaxations in tax norms and liquidity assistance to NBFC Fintechs. We welcome the government support towards the tech driven startups, as it will go a long way in creating a sustainable fintech ecosystem. We also wish that the budget caters to encouraging women entrepreneurs by offering benefits in tax deduction, easy accessibility of resources & funds among others.

Rachit Chawla, CEO & Founder, Finway FSC: 

The capital gain taxation of Unlisted equity shares should be brought at par with listed equity shares. Listed equity shares approximately tax 10% long term, 15% short term, whereas capital gain and taxation of Unlisted are at the highest bracket, which is like 30%. So, it should be at par. Then the process for the first three years of returns for compliance such as GST TDs income tax should be simplified for startups. Labor laws and company laws for startups should be made simpler. Then there should be concrete measures to facilitate ease of doing business. Government should see how low-cost financing can be made available to startups.  And also maybe you know, for the first year there can be some sort of tax holiday.

Mandar Agashe, Vice-Chairman & MD, Sarvatra Technologies Ltd:

There have been positive signs of economic recovery following the pandemic’s severe crisis. The government’s ongoing push has resulted in greater adoption of digital payments methods like UPI, AePS, QR codes, and others, and individuals have become accustomed to transacting digitally. Digital payments can expand their network to further parts of the country, and to do so; the budget must include bold policy interventions to build digital infrastructure, which will eventually aid in the digitization of the entire economy.

Since the country only has 5.2 million active POS machines, the budget should include tax incentives to encourage the use of PoS/Micro ATM devices, which are significantly more cost-effective and infrastructure-wise less demanding than ATMs. Further, the sector would welcome a GST exemption for merchants who accept digital payments; this measure will encourage further digital adoption, particularly in semi-urban and rural markets, where digital payments are still scarce.

In the end, we would hope the budget puts a special emphasis on advancing the country’s FinTech ecosystem as the FinTech industry can boost India’s economy to the position it deserves.

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Krishna Mali
Krishna Mali
Founder & Editor of TechGraph

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