Budget 2020: Small Finance Banks And Their Expectations

The banking sector in India has been in a state of flux for a few quarters now. It 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 one or two quarters.

Meanwhile, household savings are being stowed away for rainy days, leading to ~10 per cent growth in bank savings. With a line-up of higher government spending, divestment avenues, GST expansion, bank recapitalisation requirements, the sector will significantly influence Budget 2020.

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 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.

Expectations From Budget 2020

• Focussing around reforms in areas s.a. Tax, Labour, Infrastructure an PPP. will be critical to spur long-term economic growth.
• Some special sops for agriculture and allied industries, land reforms, micro-housing development and rural town development with digital access will boost the rural economy.
• A push for labour–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 the 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 government has enough liquidity in its coffers to push consumption demand is much required.
• Steps to address liquidity concerns in the banking system and restart lending.
• Incentivise 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 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 is 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 baited breath, we await!

The author is the MD and CEO at Fincare Small Finance Bank