Budget 2019

Impact of Budget 2019 on transaction banking

Budget 2019 was announced on 5 July 2019 by Nirmala Sitharaman, and several initiatives to encourage digitization and the MSME sector were announced

Everyone looks forward to the budget announcement with a lot of anticipation- both citizens and corporates. From a Transaction Banking perspective, there have been a lot of announcements in Budget 2019 with varied anticipated impacts.

Digital push

Transaction Banking and the payments industry have been aggressively adapting to the digital frontiers and this budget provides impetus to that. The imposition of TDS of 2%, if an individual or an entity withdraws Rs 1 crore or greater than that in a financial year from a bank account, is a step towards making India a digital economy. This positive step is expected to push digital transactions through banks.

Merchant Discount Rate has been made zero with the motive to make more and more merchants accept digital payments. MDR has been a source of revenue and means to recover the various costs involved in issuing cards and POS terminals. This arrangement is expected to go live from November 1st 2019 and the moot question remains, how banks will be able to recover their costs. Usage of less cash is going to help banks reduce their operational costs associated with cash handling.

Support to MSME sector in Budget 2019

The budget has tried to support the small businesses by giving them various enablers. The growth of MSME sector is going to be a positive sign for the Transaction Banking in India as banks will now look to increase their penetration in the sector. Various steps have been taken to support the credit requirement and liquidity problems of the small businesses. Factoring Act, 2011 has been amended to enable NBFCs listing on the TReDS platform. This is going to directly bring more support to the MSMEs. Creation of a digital payment platform for MSMEs for payment of invoices is also an innovative solution to support the MSMEs. The allocation of 350 INR crore for 2 % interest subvention for GST registered MSMEs is another step in this regard.

Apart from the above, pension support to small businesses is another noteworthy initiative of the government to support MSMEs. Women entrepreneurs have also been encouraged under the MUDRA scheme by supporting them with a loan of Rs 1 lakh.

Through all these initiatives the Budget 2019 has tried to act as a catalyst for the growth of MSME sector in India.

IFSC Incentives (GIFT City)

GIFT city is the only International Financial Service Center (IFSC) in India currently and the government has tried to increase incentives for Corporates operating out of GIFT city to make it a global financial hub. The 100 percent deduction of tax for units located in GIFT city has been increased to a period of 10 years and dividend distribution tax has also been made zero. Such steps are encouraging various corporates including banks to set up their units at IFSC. A bank operating out of GIFT city has the advantage to offer a wider range of products along with access to international financial markets and customers.

The recent budget has highlighted the role of Transaction Banking to make India a 5 trillion dollar economy. Digital push, growth of MSMEs, development of IFSCs are going to play a crucial role in achieving the goal.


By Asit Oberoi, Senior Group President and Global Head – Transaction Banking Group, YES BANK

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