Prelude To Budget 2025: Here Is What Fintech, Banking Sector Anticipate
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The month of September in the year 2023 has seen over 11 billion transactions taking place using the Unified Payment Interface (UPI) in a single month. From the financial service provider’s perspective, embracing the digital ecosystem entails benefits like lower operational costs, improved liquidity management, reduced operational risks, etc. From a customer’s point of view, the shift to digital mode offers the advantages of convenience, real-time transactions, reliability and better financial management. The shift to digital payments has catalysed new products like digital loans. Digitalisation goes beyond payments and encompasses the entire customer journey where a seamless collaboration between the fintech and the banking industry is important. The fintech ecosystem continues to grow in India, therefore it is important to understand what the industry expects from the upcoming vote of account.
Here are some of the key expectations that the industry has from the interim budget for the year 2024-2025.
NPA issue should be addressed, Cybersecurity should be strengthened
“The Banking, Financial Services and Insurance (BFSI) industry in India anticipates measures in the Union Budget to promote digitalisation, enhance cybersecurity, address non-performing assets (NPAs) and introduce reforms for financial inclusion. Additionally, stakeholders looking for policies encouraging investments, easing regulatory frameworks and fostering innovation within the sector. More measures to boost economic growth, reforms in taxation, infrastructure development, incentives for key sectors like manufacturing and technology and efforts to address fiscal challenges while ensuring social welfare,” said Narendra Dixit, Head of Retail Banking at CSB Bank.
Focus should be given to digital payment adoption in tier 2 and beyond regions
“In the Union budget 2024-25, the government should further push for initiatives that will focus on boosting adoption of digital payments in tier 2 and beyond regions. Policies should incentivise the creation of a fertile environment for fintech startups to innovate and build products and solutions that will be more inclusive and adaptable for both consumers and businesses. I also expect the introduction of regulatory frameworks that will help curb digital fraud and build a safer and more secure digital payment environment, reinforcing the trust of users in digital transactions. There is a call for the implementation of a standardised know-your-customer (KYC) framework across all financial services, aiming to enhance efficiency and promote financial inclusion, in a secure way. Overall, the budget should also announce some provisions to ease the financial burden on fintech and provide tax-saving benefits to startups in the sector,” said Akash Sinha, chief executive officer (CEO) and co-founder, Cashfree Payments.
Digital Payments Critical For Formalising MSME
“Micro, Small and Medium Enterprises (MSMEs) are the driving force of India’s economic growth and prosperity. To fully unlock their potential, the upcoming Union Budget should focus on measures that would improve access to liquidity, skill development and ease of doing business for small businesses. The government could also focus on encouraging the use of digital public infrastructure which will help improve access to credit for MSMEs. Digital payments are another crucial link in the formalisation of MSME business operations. Continuing to encourage digital payments will improve the creditworthiness of these MSMEs,” said Arun Nayyar, MD and CEO, NeoGrowth.
Along with MSMEs, the measures to maintain the profitability of state-owned banks and increase the subsidies for small businesses are also expected by the fintech sector.
“Introducing incentives for FinTechs committed to empowering underprivileged SMEs through financial and technical support would be a much-welcomed move. Additional measures, such as maintaining the profitability of state-owned banks, enhancing credit guarantee schemes for MSMEs, introducing Performance Linked Incentive (PLI) schemes and augmenting subsidies for small businesses, are eagerly anticipated. The financial services industry also expects key announcements pertaining to the management of Non-Performing Assets (NPAs),” said Nirav Choksi, CEO and co-founder, CredAble.
Cloud Technology to play a crucial role in the upcoming year
“In this light, financial institutions and companies will have to use new-age technologies to meet customer expectations. Cloud technology will play a big role here. RBI's proposal to establish a cloud facility for the financial sector was a major move in this direction. I hope the Finance Minister furthers this in the Budget and we would like to see dedicated policies on cloud technology for payment. With the recent milestone achievement by the Reserve Bank of India (RBI) of the digital rupee surpassing one million daily transactions on 27 December 2023, central bank digital currency (CBDC) should be included as a part of financial inclusion in the budget this year. The government should also focus on expanding the reach of digital payments to the smaller cities and towns in India. What is now becoming the norm in urban India needs to be adopted across the country as well to take Digital India to the next level." said V. Balasubramanian, CEO, FSS Cash Tech.
Ease in liquidity for NBFCs expected
“We don’t expect major shakeups in the upcoming Interim Budget for FY25. We do, however, hope for measures to support liquidity ease for new-age financial players, particularly non-banking financial companies (NBFCs). Financial support is crucial for further sustained and inclusive growth of NBFCs, which will in turn benefit students struggling to access financial services in remote parts of India,” said Nikunj Agarwal, Head Debt and Lending Alliances, Propelld.
Policy intervention required to enhance Credit Access to low-income strata
“Key announcements around aligning the Goods and Services Tax (GST) input credit for NBFCs to 100 per cent at par with other entities can spur growth for NBFCs. Any policy intervention that improves credit access for lower-income groups and new-to-credit borrowers would be highly encouraging. With the RBI urging the diversification of funding channels beyond traditional banks, policies that promote modern NBFCs to consider obtaining credit from international agencies or the government would broaden their funding avenues,” said Akshay Sarma, CFO, axio.
Permitting NBFCs to offer credit cards acknowledges fintech's evolving landscape
After the recent regulatory enhancements, allowing tax breaks should create a conducive environment for fintech innovation, empowering fintechs to explore new avenues responsibly. We would be eager to see emphasis on incentivizing fintech in under-serviced areas which complements our objective of creating a robust distribution infrastructure for financial inclusion. Thus government support is pivotal in catalysing positive change at the grassroots level. Recognition of fintech's role in empowering MSMEs and SMEs, coupled with targeted incentives for Tier 2, 3 and 4 cities, should highlight a strategic push toward lasting financial inclusion. Additionally, the consideration of permitting NBFCs to offer credit cards acknowledges fintech's evolving landscape, showcasing a commitment to adapting to changing financial dynamics will be a big win for the financial sector and the nation,” said Aditya Gupta, Founder and CEO, Credilio.