Budget 2019: Modi government’s announcements have an impact on banking sector; an analysis

Updated: February 8, 2019 11:03 AM

Budget 2019 India: The Kisan Credit Card Scheme (KCC) provided to farmers pursuing animal husbandry and fisheries has been enhanced to include interest subvention of 2% and an additional 3% for timely repayment.

PM Narendra ModiPrime Minister Narendra Modi

By Saraswathi Kasturirangan, Suresh Kumar and Anandan N

Budget 2019 India: The “Pradhan Mantri Kisan SAmaan Nidhi (PM-KISAN)” providing income support to qualifying farmers is proposed to be launched as a direct benefit scheme. Income support of INR 6,000 per year will be provided in three equal instalments of INR 2,000 each with retrospective effect from December 1, 2018, with the first instalment due on March 31, 2019.

With a budgetary provision of INR 75,000 crore in FY 2019-20 and INR 20,000 crores in the revised estimates for FY 2018-19 this would substantially increase the cash flow and the quantum of banking transactions in the rural branches since this would be completely routed through the banking channel

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Extended Interest Subvention / Incentive

The Kisan Credit Card Scheme (KCC) provided to farmers pursuing animal husbandry and fisheries has been enhanced to include interest subvention of 2% and an additional 3% for timely repayment. Further, for farmers affected by natural calamities and who are provided assistance under National Disaster Relief Fund (NDRF), an added 3% prompt payment incentive for the entire period of the re-scheduled loan has been proposed as against the 2 percent interest subvention for the first year of rescheduled loan. This would encourage timely repayment of loans and strengthen the loan portfolio of rural branches.

Pension through Pradhan Mantri Shram-Yogi Maandhan

This mega pension yojana assures monthly pension of INR 3,000 for workers in the unorganized sector from the age of 60 years in return for a small monthly contribution determined based on the age of the worker, which is eligible for a matching Government contribution. With an allocation of INR 500 crores, with more to come if required, at least 10 crore workers would benefit within the next 5 years. The flow of the contributions and pension payouts through the banking channels would enhance the cash flow especially in the rural banking system.

Implication of tax reliefs and changes in tax withholding limits

It is estimated that 3 crore middle class tax payers would benefit from the proposal of providing tax rebate to individuals with taxable income upto INR 500,000 and this would result in enhanced disposable income in their hands. Enhancing the threshold limit for Tax Deduction at Source(TDS) on interest income from deposits with banks and post office to INR 40,000 from current levels of INR 10,000 would mean larger deposits with the banks. This would also mean that the locking up of TDS in respect of non-taxable individuals would be minimized, resulting in increased cash flow in the system.

This would greatly help in consolidation of deposits and retention of money within the banking channel through added deposits. Overall, apart from the direct benefits through Banking reforms and the Insolvency and Bankruptcy Code (IBC), the banking sector may expect to see increased cash flows on account of the various schemes.

(Saraswathi Kasturirangan is Partner, Deloitte India; Suresh Kumar is Director with Deloitte Haskins & Sells LLP; and Anandan N is Manager with Deloitte Haskins and Sells LLP. Views expressed in the article are their personal)

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