Back to Growth: Union Budget 2021-22 announcement - BFSI
The Union Budget 2021, the first of this decade, has provided a significant push towards the growth of the financial services in the economy, emerging from a global economic crises. Some of the key measures and reforms announced in this one-in-a-hundred-years budget for encouraging the development of the BFSI segment in the country include:
- Increase in FDI in insurance from 49% to 74%: The Budget 2021 proposes to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% to 74% in insurance companies and allow foreign ownership and control with safeguards. Under the new structure, the majority of directors on the Board and key management persons would be resident Indians, with at least 50% of directors being independent directors, and specified percentage of profits being retained as general reserve.
- Stressed Asset Resolution by setting up a new structure: The Budget 2021 has proposed new measures for cleaning up of bank books due to high levels of provisioning of stressed assets. An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets to alternate investment funds and other potential investors for eventual value realization.
- Recapitalization of PSBs: To further consolidate the financial capacity of PSBs, further recapitalization of INR 20,000 crores has been proposed in 2021-22.
- GIFT City – IFSC: The government has proposed to support the development of a world class fin-tech hub at the GIFT-IFSC.
- Tax incentives to IFSC: The government is committed to make the International Financial Services Centre (IFSC) in GIFT city a global financial hub. In addition to the tax incentives already provided to organizations in the IFSC, the Budget has proposed to include, among others, tax holiday for capital gains for aircraft leasing companies, tax exemption for aircraft lease rentals paid to foreign lessors; tax incentive for relocating foreign funds in the IFSC; and to allow tax exemption to the investment division of foreign banks located in IFSC.
- Streamlining Deposit Insurance Cover: The Budget has proposed for the DICGC Act to be amended to streamline the provision of Deposit Insurance Cover which had been increased from INR 1 lakh to INR 5 lakh last year, so that depositors can get easy and time-bound access to their deposits in stressed banks.
- Boosting digital payments infrastructure: There has been a manifold increase in digital payments in the recent past. To give a further boost to digital transactions the Budget has earmarked INR 1,500 crores for a proposed scheme that will provide financial incentive to promote digital modes of payment.
- Decriminalization of procedural offences: The decriminalizing of the procedural and technical compoundable offences under the Companies Act has been completed and the Budget has proposed to take up decriminalization of offences under the Limited Liability Partnership (LLP) Act.
- Revised definition of small companies under the Companies Act: The Finance Minister has proposed to revise definition under Companies Act, 2013 for small companies by increasing their threshold for capitalisation to not exceeding INR 50 lakh to not exceeding INR 2 crore and turnover not exceeding INR 2 crore to not exceeding INR 20 crore. The revised definition shall help over 2 lakh companies in easing their compliance requirements.
- Disinvestment and strategic sale: The Budget has proposed to take up the privatization of two public sector banks and one general insurance company in the year 2021-22.
- LIC IPO in FY22: The Budget has proposed to bring the IPO of LIC in FY22 for which the requisite amendments shall be brought in the Budget Session.
- Financial Inclusion: MSMEs: A number of steps have been taken to support the MSME sector. The Budget 2021 has provided INR 15,700 crores to the MSMEs towards financial inclusion, more than double of this year’s Budgeted Estimate.
- Debt recovery for NBFCs under SARFAESI: To improve credit discipline while continuing to protect the interest of small borrowers, for NBFCs with minimum asset size of INR 100 crores, the minimum loan size eligible for debt recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 is proposed to be reduced from the existing level of INR 50 lakhs to INR 20 lakhs.
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