The banking industry leaders and experts said that the Budget should announce policy changes and incentives that help move towards growth, bring financial stability, and support digitalisation.

As we are closing in on the date of the Union Budget presentation, the banking sector is betting on policy continuity on infrastructure spend. The industry leaders and experts said that the Budget should announce policy changes and incentives that help move towards growth, bring financial stability, and support digitalisation. Yashraj Erande, India Leader, Financial Services, BCG, said, “For India to become a $7 trillion economy, the financial services and fintech sector has a crucial multiplier role to play. We expect the pace of reforms to accelerate with the upcoming budget. The focus of the reforms has to be on creating more large scale balance sheets, infusing digital and AI in the financial services operating model to drive efficiency, with exceptional focus on governance and risk. Driving better partnerships between fintechs and unlocking more pools of domestic and global capital to fund these balance sheets plus technology will be crucial.”

Prashant Kumar, MD & CEO, YES Bank, said, “The government is expected to remain committed to the reforms process and be focused on eight key areas: sustainable growth, financial sector, infrastructure and investment, women, youth & farmers, last-mile connectivity, inclusive development, and economic expansion – all essential towards achieving ‘Viksit Bharat’ by 2047. At YES BANK, we are prepared to support the government’s push for enhancing digital infrastructure and promoting financial inclusion. This aligns with our commitment to bringing advanced banking services to underserved regions and supporting initiatives in green mobility, affordable housing, healthcare, and education. These efforts will not only spur economic growth but also ensure holistic development.”

The industry experts also recommended that the government should increase foreign direct investment (FDI) to boost capital in the sector. Vivek Iyer, Partner, Grant Thornton Bharat, said, “Given that India is a banking led economy, initiatives around liberalisation of foreign direct investment, rationalisation of foreign bank tax rates amongst others will help boost capital flows in the country, which will further accelerate the goals towards Amrit Kaal that the government set out for India.” Currently, 49 per cent of FDI in the banking sector is allowed under the automatic route and beyond that, government approval is required for private banks. In public sector banks, up to 20 per cent of FDI is allowed.

Many also talked about taking actions towards divestment in banks and insurance. Per experts, privatisation of certain institutions could help bring in more investment and thereby strengthen the financial system. Shravan Shetty, Managing Director at Primus Partners, said, “There is a wish for a reduction in government presence, particularly in the banking and insurance sectors. While divestment has been discussed over the years, there has been limited progress towards achieving this. Now is the right time for the government to consider divestment in banks and insurance to help supercharge the credit growth required for an above 8 per cent growth rate.”

Further, with the rise in the number of frauds in the banking sector, the industry also expects the government to announce common policies and measures that will augment enterprise resilience and cyber security. According to the RBI annual report released on May 30, as many as 36,075 frauds were reported in banks in FY24, growing by nearly 166 per cent as against the 13,564 cases reported during FY23. Mahesh Ramamoorthy, Chief Information Officer, YES Bank, said, “Establishing a continuum of cybersecurity measures is essential to improving an organisation’s security posture. Investments in advanced threat intelligence and robust encryption will protect our digital assets and build user trust. Additionally, improving data privacy and governance will ensure compliance with global standards and safeguard user information.”

Further, V Balasubramanian, CEO, Financial Software and Systems, said that the government should also look at charging digital payments like UPI. He said, “The government should look at charging digital payments like UPI which will allow banks to build robust payment infrastructure and security standards enabling fast, simple and secure payments while protecting the end consumers against frauds and cyber security threats. Apart from this, the government should also focus on building a payment platform on cloud for banks. This is where cloud technology can play a major role in empowering banks to be more agile, cost-effective and collaborative in their endeavours to make digital payments safe and secure.”

Here is what’s more on the wishlist of the banking sector for the Union Budget, to be presented by Finance Minister Nirmala Sitharaman on July 23…

Anish Mashruwala, Partner, JSA Advocates and Solicitors

Given the continuity of the NDA government coming out of the recent elections, the safest bet for the banking sector is the continuity of the policy on infrastructure spend. Any additional spend there has a direct fillip to lending in the banking sector, with cascading effects in the industry supply chain verticals. Accordingly, the banking sector will hope that the growth decade of India continues with heavy infra spend. One other area that I believe the banking sector will look to is some guidance and guardrail policies around prolific digitisation. With the challenge of rising frauds in the industry and the onset of generative artificial intelligence, the banking sector, while already gearing up for that, would be looking for common policies establishing acceptable standards. Towards that, if the government could assist in sops on the spends to establish robust departments within the banks, it will incentivise the sector to embrace the challenges quicker.

Divyesh Dalal, Managing Director & Head – Global Transaction Services, SME & Institutional Liability Business, DBS Bank India 

The upcoming Union Budget presents an opportunity to boost the growth of India’s MSME sector. Measures like Production-Linked Incentives, Export promotion, Digital India campaign, simplification of tax structure and Skill development will bolster the global competitiveness of MSMEs. We are optimistic about the continued thrust on digital adoption, financial inclusion, green policies, market access and concerted efforts to foster entrepreneurship. These will help integrate MSMEs deeper into global value chains while incubating new ideas and sparking innovation. We hope to see measures that will augment enterprise resilience and cyber security, considering emerging external risks.

Rajesh Narain Gupta, Founder & Chairman, SNG & Partners

Banking requires dynamic and timely reforms for countries like India. FDI in banking should be increased to invite more capital; government participation in public sector banks should be reduced asap; incentives to individuals on tax applied on fixed deposits should be given to increase liability business and to create level playing field with the stock market and create balance; big incentives should be given to private sector especially SME on Capital Expenses for capacity building and increase employment and also to reduce dependency on government spending; focused reform and incentives be given on long term lending by banks on identified infrastructure projects; tax concessions should be given to private sector availing Green Finance to set up greenfield and brownfield Green Projects.

Protections should be given to decision makers in the banking sector where loans go bad or lead to fraud where decision is taken in the normal course and committee-based approach. Fear of penalty and prosecution need to be balanced for the banking industry to apply themselves.

Rajeev Yadav, Deputy CEO, AU Small Finance Bank

The newly appointed government will be expected to continue with policy focus on prudent fiscal management and fiscal glide path to achieve a fiscal deficit of 4.5 per cent by FY 26. This augurs well for overall macro-stability for transitioning towards the goal of Viksit Bharat by 2047. I believe the Union Government budget should focus on five key priorities for the upcoming Union Budget

– Commitment towards fiscal discipline needs to get reiterated and will boost India’s fiscal image at a time of global bond inclusion.

– Viksit Bharat requires scaling up of financial intermediation in a sustainable manner. There is an urgent need to accelerate deposit mobilization by the banking system. The FY25 Union Budget (along with support from the RBI) could look at providing a level playing field to bank deposits vis-à-vis other competing instruments by incentivizing deposit mobilization through lowering tax incidence on FDs.

– With the government’s focus on digitization and financialization of the economy and boosting cyber security, the Indian banking system needs to meaningfully scale up the technological infrastructure to be future ready. FY25 Union Budget could offer some tax rebates for scaling up technological infrastructure.

– The Union Budget needs to be multi-dimensional prioritising filling of government jobs, existing PLI Scheme to reinvigorate labour intensive sectors like textiles, leather, tourism, etc, doubling increasing allocation towards education from close to 3 per cent currently of GDP to around 6 per cent.

– The Budget could consider increasing targeted allocation for affordable housing under the PMAY Scheme while also providing tax incentives to home loan borrowers for developers. Scaling up of agriculture infrastructure and encouraging ‘farm tourism’ will also provide a strong impetus to rural incomes.