India Budget 2019: Reviving credit and enabling the Indian BFSI sector to help finance India’s growth aspirations, will be critical to catalyzing economic growth.
- By Thomas John Muthoot
India Budget 2019-20: This Friday we will see India’s Finance Minister Nirmala Sitharaman present the first budget of the first year of a new government. While India’s economy grew at a lower-than-expected rate of 6.6%, Sitharaman is likely set to announce a host of policy measures and changes to bolster various sectors to fuel growth. While the country has made rapid strides in the last few years to have a diversified and stable economy, sustained & enhanced rate of growth for the future will only be catalyzed by dynamic reforms in the macroeconomic, fiscal, tax and business environment. India is still home to 176 million poor people, it is seeking to achieve better growth, as well as to policy-led & structured inclusion and sustainability by reshaping policy measures towards human development, financial inclusion, rural transformation, and infrastructure development.
Fundamental to these changes will be to ensure a conducive and appropriate sentiment that will accelerate spending, private investment and consumption. Reviving credit and enabling the Indian BFSI sector to help finance India’s growth aspirations, will be critical to catalyzing economic growth. Within BFSi, NBFCs – particularly those in Gold Loan, Small Business Loan and Affordable Housing Finance business addressing the needs & desires of people at lower ends of the SEC strata – have been playing the predominant role in real Financial Inclusion and development of Local Economies.
A lot of hope, therefore, resides on this budget given the dismal shadow cast on the NBFC sector in the past year. We are expecting significant measures towards incentivization, sustainability and consolidation, which will give some impetus to spending in the domestic economy. Muthoot Pappachan Group hopes the announcement of the budget will bring relief to the NBFCs and in turn, its end- consumers. Our expectations from the budget are listed below:
1. The rural economy, particularly the agricultural sector, needs comprehensive measures like higher allocation for Kisan Samman Nidhi along with concrete sustainable employment opportunities.
2. There is a need to drive growth by enhancing private consumption through measures like policy rate cuts and direct tax sops. We are looking forward to measures ensuring that policy rate cuts benefits are passed on through NBFCs to its end-consumers. There must be a transparent, structured and process-driven framework for NBFCs to be able to access credit from banks. There could possibly be a comprehensive checklist and/or a scorecard with parameters such as business model, customer segment, cash flows, ALM position, Ratings and so on to automatically calculate the quantum & costs for the credit.
3. We also expect GST rates to be rationalized, particularly for the insurance sector and Health Insurance in particular. GST on Health and Retail Term Insurances is at a high 18% rate. There’s a need, in the interest of improving insurance coverage, to bring the same down substantially, in the interest of improving insurance coverage.
4. We expect there to be a level playing field for NBFCs with banks which can translate into:
a. Treating NBFCS with large gold loan assets separately like asset finance companies and infrastructure asset companies
b. Easing of norms for the securitization of short terms assets like gold loans
c. Providing PSL status for assets (like gold loans less than Rs 50,000) to NBFCS, just like it is for banks
5. The real estate sector has been under stress for quite some time. At the same time, housing for lower-income level is a basic right. However, Affordable Housing Financial Companies are not getting conducive policy environment and it is imperative to set the measures for the same. For instance:
a. Rationalization & standardisation of Property Registration rates across the country
b. Non-taxability for income from NPAs
c. Opening-up of avenues to raise long term funds to reduce the asset liability mismatch
d. Increase in the interest deduction amount under Sec 24 (b) from Rs 2 lakhs
All through the Liquidity Crisis, RBI has been supportive of the NBFC sector, within its mandate. The recent announcement of the Union Finance Minister towards according more powers to RBI. The thought- process and approach of the Government seems to be in alignment with RBI. The government seems to recognize the critical role that the NBFC sector plays and has been playing, towards the betterment of the common man. Further, it all depends upon how the actual Union Budget on the 5th of July, looks like.
- Thomas John Muthoot is Chairman And Managing Director, Muthoot Pappachan Group. Views are the author’s own.