Budget 2020: How small finance banks may fuel growth ambitions of millions

Updated: January 28, 2020 6:34:18 PM

Budget 2020-21: With a line-up of higher government spending, divestment avenues, GST expansion, bank recapitalization requirements, the banking sector will yield a significant influence on the Budget this year.

Budget 2020, Union Budget 2020 India, Budget 2020 India, Budget 2020-21Union Budget 2020 India: Rural credit demand, which is mostly dependent on monsoon besides government spending, subsidies, and MNREGA support has remained robust so far.
  • By Rajeev Yadav

Budget 2020 India: The banking sector in India has been in a state of flux for a few quarters now. The sector has witnessed muted credit growth in the mainstream, a distinct slowdown in corporate activity leading to lower expenditure and thus profitability, resulting in lesser money in the pockets of corporate and consumer. The corporate tax cut may yield some benefit over the next 1-2 quarters. Meanwhile, household savings are being stowed away for rainy days, leading to ~10% growth in bank savings. With a line-up of higher government spending, divestment avenues, GST expansion, bank recapitalization requirements, the banking sector will yield significant influence on the Budget this year.

Rural credit demand, which is mostly dependent on monsoon besides government spending, subsidies, and MNREGA support has remained robust so far. Small Finance Banks, which are focussed on Financial Inclusion for low-income households, are a good barometer of the health of the rural sector. In a small way, by fuelling dreams of millions of consumers, Small Finance Banks are contributing to the social and economic progress of India.

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Expectations from the Budget

Focus the budget around reforms in areas s.a. Tax, Labour, Infrastructure, PPP, etc. will be critical to spur long term economic growth. Some special sops for agriculture and allied industries, land reforms, micro-housing development & rural town development with digital access will boost the rural economy. A push for labor-intensive industries such as construction, housing, roads, and irrigation is required. Some measures to guarantee increment in rural household income. The spotlight to be on putting money in the hands of the consumer. Expenditure under PM-KISAN and NREGA can boost rural incomes and consumption. The right investment in rural India can help support India’s slacking growth.

The eagerly awaited tax relief through changes in personal income tax for middle-income households can certainly perk up consumption. A strong signal towards the disinvestment mandate to ensure the government has enough liquidity in its coffers to push consumption demand is much required. Steps to address liquidity concerns in the banking system and restore confidence to restart lending. Incentivize and boost Digital India Initiatives, especially recognition of e-KYC and e-Sign, can go a long way in boosting financial inclusion and enhancing efficiency. Given its popularity, reduce the taxation on FD returns at par with that of debt mutual funds.

Many suggestions on how to address the woes of the economy and industry are doing the rounds in the government corridor. Many industry captains have made an appeal on behalf of their brethren. In good faith, some measures have already been set in motion by the Government, but not enough. In the current state of a market-driven economy, there are lots to be done to secure India’s place in the $5 Trillion-club. At no time more than now, India needs a blockbuster, reforms-laden budget. Time for a surgical strike of another kind. Will it be in 2020? With bated breath, we await!

(The author is MD & CEO, Fincare Small Finance Bank. The views expressed are the author’s own)

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