Amidst the current omicron wave, the world economy, including the Indian Economy, are on a path of recovery from the Covide-19 pandemic. This year the Indian Government has focused on digital and technology to gear up digital-led India by emphasis upon digitalizing finance. The budget has used “Digital India” as a pillar to bring in inclusion and to build a robust economy in the long term. Here we are providing outlined policy measurements expected in Union Budget 2022 for finance, insurance, investment and stock industry.
Banking, Insurance, and Investment
Post pandemic phase, the banking sector has shown signs of recovery and now the banking sector is focusing on innovation, technology based services and digital transformation. So, the budget could introduce policy initiatives to give impetus to innovations in the banking sector, by offering incentives such as reimbursement of certain costs or tax subsidy in the form weighted deductions/100 percent depreciation, etc.
The pandemic has significantly increased the potential for health and life insurance penetration. While life insurance penetration has increased from 2.8 percent in FY20 to 3.2 percent in FY21, and non-life insurance has increased to 1 percent in FY21 from 0.94 percent in FY20, it still remains under-penetrated. The percentage increase of linked life insurance premium is 168.3 percent while non-linked life insurance premium is 0.4 percent in FY 2021-22, which may show that life insurance is being viewed as a saving and investment product rather than protection product.
The asset under management (AUM) of the mutual fund (MF) industry has grown from Rs 6.82 trillion as on November 30, 2011 to Rs 37.73 trillion as on December 31, 2021 — that’s more than a six-fold increase in a decade.
Some key proposal in budget for banking and finance sectors are:
- Rs.70,000 crore has been provided to the PSU Banks for boosting their capital and improving their condition.
- PSU Banks have been provided with a one-time 6-month credit guarantee of Rs.1 lakh crore during 2019-20 for purchasing high-rated pooled assets of the financially-sound NBFCs.
- A Credit Guarantee Enhancement Corporation will be set up in order to expand the infrastructure financing sources.
- An action plan will be devised in order to deepen the credit default swaps, corporate bond repos, etc.
- An arrangement to permit AA-rate bonds as collateral has been proposed on the tri-party repo market in corporate debt securities.
- Investments made by FIIs/FPIs in debt securities issued by IDF-NBFCs have been proposed to be transferred/sold to any domestic investor within the defined lock-in period.
- The Finance Minister announced to increase the FDI in the insurance sector from 49% to 100% for insurance intermediaries.
- Net-owned fund requirement for re-insurers to join IFSC has been reduced to Rs.10 billion from Rs.50 billion for encouraging insurance companies to start operation in India.
- Tax incentives like enhanced holiday schemes, tax exemption for interest paid on external borrowings, relaxation on certain distribution taxes, etc. have been announced to promote IFSC.
- An aircraft financing and leasing hub will be developed within the IFSC.
- A social stock exchange will be set up to enable easy funding for social enterprises.
- Interoperability of service for account holders across PSU banks in India has also been proposed.
- The government will consider relaxing FDI in aviation, insurance, and single-brand retail.
- The budget proposed to examine steps to hike FDI cap in aviation, media, and insurance.
- The finance ministry has proposed to SEBI to increase public-holding in listed companies to 35% from 25%.
- Finance Minister Nirmala Sitharaman proposes to create an electronic fundraising platform for listing social enterprises.
- NRI investment and KYC norms for foreign portfolio investors will be streamlined.
- 100% FDI will be permitted for insurance intermediaries.
- The NRI portfolio route will be merged with the FPI route in order to increase the number of NRI investments in India.
- Housing finance companies (HFCs) will be regulated by the Reserve Bank of India from now onwards instead of the National Housing Bank (NHB).
- The budget has proposed to cut stake below 51% in non-finance PSUs on a case-by-case basis.
- A new series of coins of denominations Re.1, Rs.2, Rs.5, and Rs.10, and Rs.20 will be introduced.
- The government will take measures to enable the account holders to have control over the entities who make cash deposits in their accounts.
- Rs.4 trillion loans under IBC will be recovered in the next 4 years.
- The government proposed recapitalisation of public sector banks to enable them to lend additional Rs.5 lakh crore.
- Rs.3 lakh crore loan disbursement target set for the next fiscal under the ‘Mudra’ Scheme. Rs.4.6 lakh crore is sanctioned by the government under this scheme.
- Instant farm credit of Rs.11 lakh crore is proposed for the next financial year.
- For allowing open gold deposit accounts in a hassle-free way, the ‘Gold Monetisation’ scheme will be revamped.
- The limit of Rs.7.5 lakh for investment in interest-bearing LIC schemes for senior citizens is doubled to Rs.15 lakh.
- United India Insurance, Oriental insurance, and National insurance are suggested to be merged while listing.
“A 2017 RBI Report of the Working Group on FinTech and Digital Banking had noted that customers were rapidly adopting technology in their daily lives, driven by the growth in internet and mobile penetration, availability of low-cost data plans, and shift from offline to online commerce.”
Digital Banking Units’ in 75 Districts by SCBs
To mark 75 years of Indian Independence, 75 Digital banking units will be set up in 75 districts of the country by the Scheduled Commercial Banks (SCBs). This would push ahead financial inclusion, and the banks might see improved access to liabilities pools from newer consumer sources in those geographies.
Post Offices on Core-Banking System
All the 1.5 lakh post offices in India are set to be connected to the core banking system in the FY 2022-23. This will enable financial inclusion and access to post office accounts through net banking, mobile banking, ATMs, and also provide online transfer of funds between post office accounts and bank accounts.
The Digital Currency
The budget proposal mentions that the digital rupee will be introduced by the Reserve Bank of India (RBI) in FY 2022-23
“Introduction of Central Bank Digital Currency (CBDC) will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce Digital Rupee, using block chain and other technologies, to be issued by the Reserve Bank of India starting 2022-23”, Finance Minister Sitharaman said.
The Crypto Currency
The government has also announced that any income from transfer of digital assets will be taxed at the rate of 30 percent. This will impact all profits from trading in crypto currency and Non-Fungible Tokens (NFTs).
Conclusion
Financial service sector is the pillar of the economy. So such reform/policy measures will go a long way to boost and strengthen the finance, insurance, investment, banking and stock sector through financial inclusion and digitalization of the financial services as envisioned by the Government.
