Budget 2018: In the background of two key structural reforms – demonetization and GST – adoption of digital payments and new age banking services have witnessed an upward trend, albeit among a small percent of population. To promote the cause of digital transactions further, we expect Finance Minister Arun Jaitley to make provisions in the Union Budget 2018 to incentivize service providers as well as customers.

What can be done?

Firstly, the GST slab of 18% for banking services needs to be brought down to a reasonable level. Secondly, a revision on the charges for Micro ATM transactions from 0.5% to 1%, as it was earlier, will improve the viability of the business. Thirdly, adequate cyber security measures need to be in place to avoid financial frauds in the digital space. These steps, if taken in the Budget 2018, will bring down the overall cost of services and build customer trust, leading to increase in transactions and revenues.

From digital infrastructure point of view, the budget can look at reducing the GST on micro ATMs from 18% to 5% to allow payments banks and other entities to increase uptake. This will facilitate increased and deeper penetration of digitally-enabled points, leading to more adoption of digital platforms. Another positive outcome of this development would be the need for millions of skilled workforce who will take digital banking to the masses.

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Having said that, banks have been employing business correspondent (BC) service providers to facilitate financial inclusion and DBT payments through digitally enabled agents in rural areas. We would like the Union Budget 2018 to increase the commission for BC service providers to up to 2%. We believe this will go a long way in ensuring financial viability and improving earning potential of BC agents.

Banking perspective

From an overall banking perspective, the measures taken by the Government of India for reforms in the banking sector, especially the Insolvency and Bankruptcy Code as well as Financial Resolution and Deposit Insurance (FRDI) Bill, are laudable. However, there is a need to uphold the trust reposed by customers regarding the safety of their savings.

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A key step towards addressing the trust concern is by reviewing and increasing the Rs 1-lakh insurance limit on depositor’s money. It may be noted that while income and deposit levels have been growing substantially over the years, the insurance limit has not been changed since 1993.

At a broader level, in addition to focus on infrastructure and other core sectors, the Budget 2018 should put emphasis on rural economy, especially agriculture, MSME, SME and other unorganized sectors. Access to formal credit and banking services, coupled with creation of jobs and improved wages, will lead to consumer spending. Add to this the gradual adoption of digital platforms will bring in more transparency and ease of doing business, which augurs well for the overall economy.

(By Rishi Gupta, MD & CEO, Fino Payments Bank)