Budget 2020-21: The announcement on raising the limit of deposit insurance to Rs 5 lakh will bring in a lot of comfort to the borrowers and trust in the financial institutions, especially for new-age banks like small finance banks.
By R Baskar Babu
Budget 2020-21: Budget 2020 aims to accelerate the economy back to a high growth path by stimulating consumption as well as public investments.
With the goal of $5-trillion economy in mind, the government is focussing on better employment opportunities, improved standard of living, initiatives for the agricultural, education and health segment along with focus on increasing the ease of doing business, thereby following a very balanced and comprehensive approach towards the growth planning.
With the future growth in mind, the government announced expansion of the fiscal deficit targets by 50 basis points to keep the current year revised estimates at 3.8% of gross domestic product (GDP) and the next year target at 3.5% of GDP.
The micro, small & medium enterprises (MSME) sector has been identified as the critical driver for the economic growth.
The government has proposed suitable amendments for enabling invoice financing to the MSMEs by non-banking financial companies (NBFCs). Further, an app-based invoice financing loan product is also on the cards.
Both these proposals are expected to bridge the gap of sales and realisation within the overall operating cycle of MSMEs, thus helping them to mitigate their risk of delayed payments and consequential cash flow mismatches.
These measures will also help the MSMEs to improve their economic and financial sustainability. The Credit Guarantee Trust for Medium and Small Entrepreneurs (CGTMSE) and the refinance fillip through Nabard is a welcome step to ease the credit flow to the sector.
The announcement on increasing the limit of DICGC (Deposit Insurance and Credit Guarantee Corporation) cover to Rs 5 lakh from Rs 1 lakh will immediately bring in a lot of comfort to the borrowers and trust on the financial institutions, especially for new-age banks like small finance banks, as it is an additional cushion besides the financial strength of the institution.
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Further, on developing the trust on the banks especially, the cooperative banks, the government has proposed amendments to the Banking Regulation Act for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the Reserve Bank of India.
The rationalisation of tax slabs and an intent to simplify the tax compliance mechanism is expected to leave more disposable income in the hands of the taxpayers, thereby lending an impetus to the consumption story. With several reforms in the vision, the Union Budget 2020 can be seen as ‘the Budget for the future’.
The writer is MD & CEO, Suryoday Small Finance Bank