Budget 2023 Expectations: Initiatives to make the BFSI sector robust & inclusive
Budget 2023 Expectations: The banking, Financial Services, and Insurance sector (BFSI) constitutes a significant portion of the multi-billion dollar Indian economy and comprises banking, insurance, NBFCs, broking, asset management companies and non-banking financial institutions. India has been one of the most favoured destinations for the BFSI due to inter-dependent factors of government policy, active public/private involvement, robust regulatory measures, and technological evolution, which has also made the sector fundamentally strong over the past few years. In addition, this sector plays a vital role in driving the economy in terms of consumption, infrastructure development, risk mitigations and investments, among others.
Despite the strong growth, the industry is facing the following key challenges: evolving demand of the Customers, Data and Cyber Security, changes in the policies and legislation, and strict compliance.
Banking is one of the main pillars of the BFSI industry
The banking sector has various expectations from the upcoming Union Budget 2023 as the banking sector has assets worth more than US$ 2.6 trillion. Thus, it makes it very important for the Indian Economy. The industry also plays a significant role in facilitating the attainment of goals at the macro and micro levels through credit facilities. The following are our expectations from the government:
- Fast-tracking the public sector bank privatisation programme
- To include the urban cooperative banks under mainstream banking to reduce the risk of depositors and ensure their orderly growth
- Incentivising higher income-tax deductions for bad and doubtful debt provisions by providing accelerated exemption benefits so that banks can get out of the NPA mess quicker and with lesser longer strain
- Measures to boost smooth credit flow for agriculture
- Supporting the agritech companies in providing credit access by allocating funds
- Financial inclusion via new technology
- Providing tax and regulatory relaxations for digital innovation
NBFCs are the essential pillars that support the credit requirement after banks
Non-banking financial companies (NBFCs), an alternative to the mainstream banking system, play a vital role in Indian Economy, with the growing financial needs of the urban middle class and a predominantly rural population. Our expectations from the upcoming budget from the Indian Government:
- The threshold for allowing recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act should be decreased to Rs 2 lacs from Rs 20 lacs to par with banks, small finance banks, housing financiers, and other financial institutions
- An agency should be made to provide the liquidity support
- To democratise pass-through certificate investments by creating a platform and making necessary regulatory changes for higher participation.
Insurance Sector is one of the premium sectors which is experiencing upward growth
The Indian insurance market is valued at more than US$ 130 billion and is driven by growing incomes and increasing awareness in the industry. India is the fifth largest life insurance market in the global emerging insurance markets, growing at a CAGR of 17% over the past two decades. Our major expectations from the upcoming budget:
- 18% GST is charged on health and life insurance, which is expected to reduce to 5%
- Household insurance should be made tax-free to promote the sector
- Introduction of separate tax deduction limits for life insurance premiums to encourage the industry.
- Raising the TDS exemption limit on the insurance commission (under section 194 D of the Income Tax Act) from the current Rs. 15,000 to incentivise insurance agents
- To reduce the taxes of the reinsurance business from 22% to 15%
Initiatives to enhance the role of the mutual fund industry for a multi-trillion dollar economy
The AUM of the Indian MF Industry stood at ₹39.89 trillion as on December 31, 2022 – a more than 5-fold increase in the last ten years. Our expectations from the industry are as follows:
- Uniform tax for debt mutual fund schemes and securities
- Long-term capital gains on listed equity shares or units of equity-oriented fund schemes should be exempted from the capital gains tax.
BFSI expect the budget to help the industry take fresh guard to renew the journey towards making India a multi-trillion dollar economy.