As Finance Minister Nirmala Sitharaman prepares to present her Budget this month, the focus will be on crucial decisions impacting the banking and insurance sectors. Key reforms and regulatory adjustments are anticipated, reflecting the government’s continued efforts to streamline and strengthen these sectors.
Banking sector expectations
The banking sector has high hopes for several key announcements in the Budget. One of the primary expectations is the introduction of the five-day banking week, a proposal that has been under consideration for some time. Bankers have also called for tax relief on deposits and home loans and the establishment of a dedicated refinancing entity for non-banking financial companies (NBFCs).
Under current regulations, banks are required to deduct tax on interest income earned from deposits across all branches if it exceeds Rs 40,000 per year. For savings accounts, interest earnings up to Rs 10,000 annually are exempt from tax.
Privatisation and equity dilution
One of the major areas under scrutiny is the privatisation of public sector banks (PSBs). In her Budget 2021-22, Sitharaman announced the privatisation of some PSBs as part of a broader disinvestment drive aimed at raising Rs 1.75 trillion. Despite these plans, the disinvestment process of IDBI Bank remains ongoing. Financial market observers are keen to see if the Budget FY25 will include announcements for further equity dilution in PSBs to meet the 25 percent public shareholding norms set by the Securities and Exchange Board of India (SEBI).
While the government had previously indicated plans to privatize two additional PSBs and one general insurance firm in 2021-22, experts do not foresee immediate announcements on this front. Currently, India has 12 state-owned banks managing around 60 percent of the banking system’s total assets.
Insurance sector reforms
The Budget FY25 may also prioritise long-awaited reforms to the country’s insurance laws. In November 2022, the Finance Ministry sought public comments on proposed amendments to the Insurance Act of 1938 and the Insurance Regulatory and Development Authority Act of 1999. These amendments aim to introduce composite licensing for insurers, along with other changes related to insurance intermediaries, captive insurers, and various insurance business practices.
