There are visible signs of distress in the banking and finance sector and the recent Non-Banking Financing Companies (NBFC) crisis has only made it worse. Now all eyes are on the Union Budget 2019 that is expected to bring some cheer to the sector.
As India moves closer to the general elections 2019, a lot of responsibility rests on the current government to set the tone for restructuring of the Banking and Financial Services and Insurance (BFSI) sector and sending out the message that it firmly stands behind the industry and can take bold as well as innovative steps. Now is the time for the government to come out with policies to aid and support the sector and help it in coming back on its feet.
The government must resort to strong measures to sort out some of the issues that are plaguing the NBFC sector and the crisis that exists therein. NBFCs have gradually come to a position where they are providing credit for everything – from personal loan to loan against property, from vehicles to consumer durables. A liquidity crisis in the sector will result in downturn in various industries as we have already seen in the recent months. While the government did act swiftly to contain the crisis, a lot more needs to be done to bring about fundamental strength in the sector. The capital threshold level for the NBFCs needs to be increased to at least Rs 100 crore so that they can have higher access to credit. NBFCs conforming to respectable ALM (Asset Liability Management) standards should be offered easier terms of providing line of credit by commercial banks.
Another area of concern that the industry is facing is that of discontinuation of Aadhaar-based Know Your Customer (KYC) system. The Aadhaar-based KYC and eKYC (Electronic KYC) system was an extremely beneficial and time-efficient method for companies, especially banks and NBFCs, to carry out the required KYC mandate. Discontinuation of this has resulted in companies running around for carrying out sufficient background check on their prospective customers and loan seekers, resulting in higher costs in acquiring new customers. KYC through the Aadhaar cards of customers should be resumed at the earliest to make the process cost effective for the players in the industry and make the banking and financial system more efficient.
A lot of startups in the fintech segment of the industry are also looking up to the government to provide leeway in the procedure to arrive at fair value of shares of a startup for purpose of calculation of Angel Tax. Time is ripe for doing away with the tax completely, or at least, give some relaxation to the startups that have demonstrated competence in their respective circles and fields. This will help bring more investment in the startup-ecosystem, which is making the financial sector stronger with their innovative and problem-solving-approach.
(By Kanika Gupta Shori, Co-founder and COO, Square Yards)