Srinagar, Aug 12: The recently announced Union Budget 2024 by the Finance Minister Nirmala Sitharaman garnered significant attention across various sectors including the banking sector. However the banking sector’s reception has been a blend of optimism and caution. Pertinently the budget introduced several measures aimed at boosting economic growth. The policies outlined in the budget are expected to have both short-term and long-term implications for the banking sector in India.
One of the key highlights for the banking sector in the budget is the allocation of ₹25,000 crore for the recapitalization of public sector banks (PSBs). The experts see this capital infusion as a much-needed relief, given the ongoing challenges of non-performing assets (NPAs) and the need for stronger balance sheets.
Talking to Rising Kashmir, Muhammad Aadil, a senior officer at State Bank of India said, “The government’s commitment to infusing capital into PSBs is a positive step that will enhance our capacity to lend, especially to the MSME sector, which is the backbone of the economy. This will also help in addressing the issue of NPAs by providing the necessary buffer.”
He said that the Union Budget 2024 emphasises on digital banking and financial inclusion. This move is expected to significantly enhance the reach of banking services, particularly in rural and semi-urban areas, where access to banking facilities remains limited.
Moreover, the budget also highlights the continuation of the Jan Dhan Yojana and its role in financial inclusion. With over 45 crore bank accounts opened under this scheme, the government aims to enhance the usage of these accounts through digital platforms.
Bilquees Jan, senior executive at Jammu & Kashmir Bank said, “The emphasis on digital banking aligns with the broader vision of making banking digitally advanced.”
Experts believe that one of the most significant aspects of the budget is the introduction of a new tax regime which aims to simplify the tax structure and offer taxpayers an alternative, its impact on the banking sector is nuanced. “The new regime, which does away with various exemptions and deductions, might influence the behavior of retail investors, particularly in terms of their savings and investment patterns”, an official at J&K Bank said.
Banks, which offer various tax-saving instruments like fixed deposits (FDs), could see a shift in customer preferences. With fewer incentives to invest in traditional tax-saving FDs, there might be a rise in demand for other financial products that align with the new tax regime.
Muhammad Shafat, a senior banker, expressed his concerns, saying, “The new tax regime could lead to a decline in investments in traditional banking products like FDs. Banks will need to innovate and offer more competitive products to retain and attract customers.”
The budget’s focus on supporting Micro, Small, and Medium Enterprises (MSMEs) and the agriculture sector is another positive development for banks. The introduction of credit guarantees and the extension of the Emergency Credit Line Guarantee Scheme (ECLGS) are expected to boost credit flow to these critical sectors. Given that MSMEs contribute significantly to India’s GDP and employment, banks stand to benefit from the increased lending opportunities.
“The agricultural sector, which continues to be a major borrower from the banking system, will also see enhanced credit support through the Agricultural Credit Target, set at ₹20 lakh crore. This is expected to boost rural lending and drive demand for agricultural loans”, a senior official at ICICI Bank said.
However many believe that while the capital infusion, digital banking initiatives, and support for MSMEs and agriculture are welcomed, the new tax regime poses challenges that could impact traditional banking products. Banks will need to adapt and innovate to navigate the evolving landscape and leverage the opportunities presented by the budget.
“As the banking sector continues to play a crucial role in India’s economic growth, the long-term impact of these budgetary measures will be closely monitored by industry stakeholders and policymakers alike”, an official said.
