With the Union Budget around the corner, I am of the view that it would be a broad-based budget fuelling growth besides addressing inflation concerns.
In my opinion, the following five key factors would help support this growth:
o Skill Development and Education
o Domestic Product Growth
o Export Infrastructure Facilitation
o Access to Healthcare
o Increasing Savings to Support Consumption
o Support Geo-Economic Readiness
Healthcare and Education, in addition to infrastructure, will serve as a catalyst for India’s economic growth since these encourage the expansion of related industries including townships, housing, and construction development projects. These would help boost the economic conditions and provide stability in the hinterlands as well. This is a welcome move as it supports the inclusive growth of the Nation.
Below is my wish list and proposal for Small Finance Banks from the Honourable Finance Minister:
• Priority Sector Lending (PSL) standards should be lender-neutral; that is, standards and the foundation for PSL criteria should be the same for all financial institutions.
• The documentation requirements for affordable housing loans provided by SFBs as part of financial inclusion programmes have to be reduced, so that comfort letters from Gram Panchayats may be obtained in place of a sanctioned plan of the property being funded. It is challenging to secure documentation like sanctioned plans of the property, approved by designated authorities for the land parcels and the homes thereon being built by these strata of society.
• The PSL Threshold of 75% ANBC of the previous year should be reviewed.
• Guidelines for the first batch of 10 SFBs, the overall operation and activities of these banks need to be reviewed.
• The ticket size of Rs. 25 lakh for 50% of the loan book should be reviewed based on an inflation-based amount.
• The establishment of a Joint Liability Group Credit Guarantee Fund (JLG) Loans – credit flow to consumers at the bottom of the pyramid is significantly facilitated by the microfinance industry, which includes SFBs and NBFC MFI. Despite lending to the weakest sectors of the society, the entities have been running with a productive operational structure and strong collection efficiency. But in severe event scenarios (like Covid or demonetization), lending institutions in the microfinance sector have bigger loan losses and therefore more erratic financial performance. The establishment of a credit guarantee fund for joint liability group loans may bode well for the sector’s potential to attract investors, which will increase the amount of money available to society’s most disadvantaged groups for use in creating revenue and stimulating the economy. The government or agency that offers credit insurance may impose a reasonable price on microfinance organisations or borrowers.
The BR Act of 1949 Section 5(ne) should permit a request to be taken into consideration for a threshold review of the substantial interest criterion in relation to the holding of beneficial interest by an individual or his spouse or minor child, whether singly or taken together, in the shares thereof, the amount paid up on which exceeds five lakhs of rupees or ten percent of the paid-up capital of the company, whichever is less in view of the long passage of time.
• Creating a corpus with NABARD / SIDBI for investments in Tier 2 bonds of banks, especially SFBs & NBFC MFIs (in accordance with refinancing lines offered by them) as this would enable the availability of additional capital and ensure a greater credit flow for the economy/borrower.
• Increase the availability of long-term funding for the industry by allowing banks (including SFBs) to issue bonds to finance the financial inclusion area (with identical exemptions as for bonds for affordable housing and infrastructure requirements).
In addition to addressing inflation issues, I expect the budget priorities to include improved fiscal consolidation to boost growth.
I look forward to a budget that continues to promote growth, an impetus in momentum that the nation has witnessed post the pandemic.