NBFC

Expectations of NBFCs and Fintechs from the upcoming Budget

Expectations of NBFCs

As the new government presents its third budget of the term in the upcoming 1st February, 2022, many expectations of NBFC (Non-Banking Financial Companies) and Financial Technology (Fintech) start-ups have come across with respect to easing of norms related to taxation and assistance from the government in terms of providing low cost liquidity to the retail NBFCs.

Following are the expectations of NBFC  

  • Relaxations in tax norms for fintechs
  • Expectations of NBFCs for Funding at low cost
  • Ease liquidity flow towards the NBFCs and Fintechs
  • Relaxation in norms related to GST, TDS
  • Increased Focus on MSMEs and Rural Development

Relaxations in tax norms for fintechs

The fintech industry expects from the government to create an ecosystem which is suitable for the growth of technology driven start-ups in the fintech sector. The stalwarts from the fintech industry said that the expectation from the budget is towards giving impetus to the lending NBFCs who are using financial and technology based interventions to give a boost to the underserved small and medium businesses.

They further added that the government should work towards easing of tax norms for the NBFC fintechs and provide them with the much needed liquidity assistance.

They also suggested that encouragement must be given to the women entrepreneurs by giving them incentives such as tax deductions, easy accessibility to loans among others.

Expectations of NBFCs for Funding at low cost

The NBFC sector has asked the government that the focus of budget must be shifted towards those Micro Small and Medium Enterprises (MSMEs) and small entrepreneurs who have not been able to raise loans at cheap rates and are in a way underbanked. This is expected as a bid to ease the process of availing lending for them.

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The NBFC sector believes that the Pradhan Mantri Awas Yojana scheme[1] must be extended to all the rural and urban areas. Benefits must be given in the affordable housing segment which will help to boost the economy.

One of the suggestions is to simplify the compliance framework for the NBFCs who are providing loans to the underbanked and unbanked small entrepreneurs and MSMEs so that they can be included in the formal banking system.

They also feel that a liberalized and low cost funding for the retail NBFCs is very much important for growth in the underbanked sectors.

Ease in liquidity flow towards the NBFCs and Fintechs

The economy is making efforts from the losses suffered because of the pandemic and charted out a path of growth for itself. The government’s efforts to recognise the enhanced operations coupled with the efficiency of the fintechs to fulfil the lending needs of the underserved and unserved sections of the society has given encouraging signs to the industry.

The fintech industry is expecting that these efforts made by both the government and the fintech industry is given a further impetus in the upcoming budget by announcing measures to ease the liquidity flow to the NBFCs and the fintechs.

If the budget is able to deliver on the parameters of relaxation in the norms of liquidity, right degree of regulation and liberalization of the tax regime, then it can provide the right ecosystem for the fintechs to grow and provide the innovative credit solutions for the underserved and cash strapped borrowers.     

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Relaxation in norms related to GST, TDS

The fintech and the start-up industry have seen phenomenal growth during the pandemic. Now these industries are looking out for the following expectations from the budget to sustain their growth and keep the investor confidence intact.

  1. Tax exemptions should be given on the purchase of Point of Sale (PoS) terminals.
  2. Exemptions on the GST rates applicable rural banking agents who remit funds among the households.
  3. Subsidies must be given to compensate for the waiver of Merchant Discount Rate (MDR).

The benefits of the digital payments have reached to the tech savvy customers because of the gentle taxation in place for these self serviced digital customers. To ensure that the benefits of digital payments reach to the less tech savvy section of the society and achieve the lofty goal of financial inclusion, there is a need from the government’s side to introduce relaxations in GST and Tax Deducted at Source (TDS) in the financial inclusion of services which are offered by the business outlets across India.

If the government grants waiver of GST and TDS in these services then it will translate into lowering the cost of offering financial services.

Taking into account the phenomenal growth of the start-ups in the times of pandemic, another suggestion from the industry is to extend the scope of Startup India Seed Fund Scheme so that the growth oriented statups are given financial assistance for research and development, prototype development and for products and service trials.

Increased Focus on MSMEs and Rural Development

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The financial sector believes that the budget must focus on reviving the financial sector by development of the rural sector and reviving the MSMEs. This will in turn increase the opportunities of livelihood. For this the government needs to boost lending to MSMEs. The expectations of NBFCs with respect to boost the lending to the rural sector require harmonization of regulations for both NBFCs and banks especially on matters of tax and recovery. NBFCs expect to be empowered to extend guarantees in a similar way the banks do. Other Expectations of the NBFCs and Fintechs is differential treatment of loans given to individuals and small businesses compared to loans given to big corporates. 

Conclusion

The expectations of the NBFCs and Fintechs in this budget revolve around the themes of relaxations in tax norms for the fintechs, funding for NBFCs at low cost, ease liquidity flow towards the NBFCs and Fintechs, relaxation in norms related to GST, TDS, increased Focus on MSMEs and Rural Development. To sum up the expectations of NBFCs and Fintechs is the easing the norms of lending and funding to the small scale sector at lower tax rates and treatment of NBFCs at par with banks in terms of issuing guarantees as the banks do.

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