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On February 1, 2023, the Honourable Finance Minister (FM) Nirmala Sitharaman delivered the Finance Bill 2023(FB). The FM amended FB 2023 while presenting the bill for approval by the Lok Sabha on March 24, 2023. A finance bill is a money bill defined in Article 110 of the Constitution.
By this bill, the government is proposing to collect new taxes, change the current tax system, or keep the current tax system in place beyond the time period that parliament has agreed. A Memorandum with clarifications of the provisions of the Finance Bill is attached to it. Only in Lok Sabha, the Finance Bill can be introduced.
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Expectations for banks, NBFCs, and fintech in the lending sectors were high when the honourable Finance Minister Nirmala Sitharaman introduced the Budget 2023. According to information released by the RBI on January 13, 2023, bank credit increased by 16.5% from the previous year. According to the Economic Report for 2022–2023, credit growth is also anticipated to be quick in the fiscal year 2024.
So, everyone’s attention was focused on the Finance Bill 2023 to see if the government would take any favourable measures to promote the lending industry and India’s macroeconomic growth. Credit access, improved financial services, and financial inclusion have all fuelled this beneficial development. Following that, please find the most recent Finance Bill 2023 and its moderate impact on NBFCs.
The amendments also suggest that beginning on April 1, investments in debt mutual funds will be subject to short-term capital gains tax. Investors would lose the long-term tax advantages that had made such investments so famous because of the change.
Because of the pandemic, government programmes like the Jan-Dhan, Aadhaar, and Mobile (JAM) trinity, UPI (universal payments interface), and other regulatory frameworks have become more popular, enabling banks, NBFCs, insurers, and fintech to provide a wide range of financial solutions to MSMEs. Giving NBFCs, MSMEs and the underbanked people access to financial services in many locations.
MSMEs have primarily received funding from NBFCs. The declining GNPA ratios from the peak of 7.2% observed during the second wave of the pandemic to 5.9% show a consistent improvement in the asset quality of NBFCs. It’s excellent to see that the government has amended taxation in the MSME sector and offered other essential steps that support MSMEs’ economic growth. Overall, this year’s budget has been balanced and pragmatic.
NBFCs will need to concentrate even more on their pricing power to sustain profitability and focus on higher-yield categories for expansion in a climate of rising interest rates and fierce competition from banks. Stronger NBFCs will continue to perform better and develop stronger in the years to come. These NBFCs will have stronger business models, adequate capital, good underwriting capabilities, and a focus on digital strategy.
It is also encouraging to note that the RBI and policymakers acknowledge the role that NBFCs play in fostering genuine economic activity and satisfying credit demand, particularly for the unbanked. Another encouraging development for the sector is the latest RBI Scale-based regulations, which will boost NBFCs’ standing to parity with other public sector NBFCs. We anticipate gaining additional operational flexibility under these new regulations to accommodate the rising credit demand and support India’s economic expansion.
The Union Budget 2023 includes a number of other tech-driven measures, including simpler “Know Your Customer” (KYC) process for financial services. Your PAN number will now serve as a standard form of identification. You can simply get credit facilities with the use of a risk-based strategy rather than a uniform KYC process for everyone.
Also, all fintech, NBFCs and MSMEs will benefit greatly from the government’s development of its Digital Locker services. Before, access to this facility was only permitted for individuals. Fintechs may now acquire and exchange documents instantly with the safe option for storing important documents.
Moreover, the range of personal document storage has been expanded. This facility allows you to store important documents safely, such as:
It makes it quicker and simpler for you to get credit when you need it. Banks and other financial organisations may now store and share data quickly and securely online with the growth of Digital Locker services.
The proposed change appears to tax these mutual funds similarly to bank deposits, which are subject to slab taxation rates. Additional government programmes, including the 75 Digital Banking Units (DBU) across 75 districts, are an additional effort to make financial services accessible throughout the entire nation. Lending organisations are also searching for newer sources of funding that will allow them to provide better loan options.
NBFCs will contribute more to the socio-economic framework of the Indian economy in 2023. In India, the potential for credit penetration is still huge. By collaborating with fintech and developing new business models with tailored products, NBFCs may raise the bar.
Also Read:Key Highlights of the Finance Bill 2023The Finance Bill 2023 and its Impact on Angel Investors
I am a driven and meticulous professional who completed B.Com BL (Hons) from Tamil Nadu Dr. Ambedkar Law University and completed Master of Laws in specialization (Criminal Law with Cyber Crimes). I have extensive experience in Criminal Litigation and want to utilise my legal knowledge in writing also I have proficiency in writing legitimate content with comprehensive research. My core areas of interest are Business Law, Intellectual Property Rights, and Cyber crimes.
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