Reforms in banking sector

February 01, 2020

With a view towards unlocking flow of capital to the financial sector, the Union Minister for Finance and Corporate Affairs unveiled several reforms across the banking sector, financial markets and infrastructure financing.

While presenting the Union Budget 2020-21 in Parliament today, the Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman said, “A clean, reliable and robust financial sector is critical to the economy. In our efforts to achieve the USD 5 trillion economy, the financial architecture should keep evolving and move from strength to strength.”

In order to unlock private capital, Smt. Sitharaman proposed the sale of the balance holding of Government of India in IDBI Bank to private, retail and institutional investors through stock exchange. On the back of bank consolidation and capital infusion of Rs. 3,50,000 crore into Public Sector Banks (PSBs), the Finance Minister asserted that governance reforms would be carried out to make them more competitive, transparent and professional and thereby ensure a robust banking system. A few PSBs would also be encouraged to approach capital market to raise additional capital.

Further, the Minister announced that Deposit Insurance and Credit Guarantee Corporation (DICGC) has been permitted to increase Deposit Insurance coverage to Rs. 5 lakh per depositor from Rs. 1 lakh previously. She emphasized that a robust mechanism is in place to monitor the health of all Scheduled and Commercial Banks, and thereby ensure safety of depositor money.

Cooperative banks and NBFCs are also important constituents of the financial sector to be strengthened through improved governance. With respect to the Cooperative Banks, amendments to the Banking Regulation Act have been proposed to increase professionalism, facilitate access to capital and improve oversight through RBI. Further, limit for NBFCs to be eligible for Debt Recovery Mechanism via SARFAESI Act, 2002, is proposed to be reduced from existing asset size limits of Rs. 500 crore to Rs. 100 crores or loan size from existing Rs. 1 crore to Rs. 50 lakh.

Stressing on the need to strengthen the regulatory role of PFRDAI, the Finance Minister proposed necessary amendments in PFRDAI Act that will also facilitate separation of NPS trust for Government employees from PFRDAI. This would also enable establishment of a Pension Trust by the employees other than Government. Further, the Government proposes to infuse auto-enrolment into Universal Pension Coverage, apart from mechanisms for inter-operability and safe-guarding of accumulated corpus. “I am confident that this will motivate citizens to plan for their old age”, she added. 

Micro, Small and Medium Sector Enterprises (MSMEs)

The Finance Minister noted that MSMEs are vital to the economy as they are the innovators, job creators and risk-takers. Several initiatives have been announced to enhance economic and financial sustainability of MSMEs.

  • To enable NBFCs to extend invoice financing to MSMEs through TReDS, amendments have been proposed to Factor Regulation Act, 2011. Further, the Minister announced the launch of an app-based invoice financing loans product to obviate the problem of delayed payments and consequential cash-flow mismatch.
  • A new scheme to provide subordinate debt to MSME entrepreneurs has been proposed to mitigate the issues of working capital credit. This subordinate debt, to be provided by banks, would count as quasi-equity, and be fully guaranteed through Credit Guarantee Trust for Medium and Small Entrepreneurs (CGTMSE), whose corpus shall be accordingly augmented by the Government.
  • The Government has asked RBI to consider extension of debt restructuring window for MSMEs till March 31, 2021. More than five lakh MSMEs have benefitted from restructuring of debt permitted by RBI in the last year and the same is due to end on March 31, 2020.
  • In order to offer handholding support for mid-size companies in export markets, the Government has proposed a scheme of Rs. 1000 crore, to be anchored by EXIM Bank and SIDBI, each of which shall contribute Rs. 50 crore each. This Rs. 100 crore would be achieved towards equity and technical assistance, while the remaining Rs 900 crore would be via debt funding from banks. The scheme shall focus on selected sectors like pharmaceuticals, auto components and others, and would extend support for technology upgradations, R&D, business strategy etc. 


In order to provide greater access to financial markets, unlock true value and induce market discipline, the Government has proposed sale of a part of its holding in LIC by way of Initial Public Offer (IPO). This shall also be an opportunity for retail investors to participate in the wealth so created. 

Infrastructure Financing

The Finance Minister highlighted the Government’s commitment to infrastructure investment with its announcement of Rs 103 lakh crore National Infrastructure Pipeline projects. She informed the House that Rs 22,000 crore has already been provided for the same. This shall serve as equity support to Infrastructure Finance Companies such as IIFCL and a subsidiary of NIIF, who shall then leverage it, as permissible, to create a financing pipeline of more than Rs. 1,00,000 crore.

Underscoring the potential of IFSC, GIFT city to become a centre for international finance and high-end data processing, Smt Sitharaman proposed the setting up of an International Bullion Exchange at GIFT-IFSC as an additional option for trade by global market participants. It is further expected to enable better gold price discovery, create jobs and enhance India’s position worldwide. The Minister outlined that GIFT-IFSC already has an approved Free Trade Zone for housing vaults, 19 insurance entitites, 40 banking entities, along with precious metals testing laboratories and refining facilities being set up. 

Financial Markets

To achieve the aspirational growth rate, the Finance Minister underscored the need to boost the flow of capital in the financial system, through the following measures, taken in consultation with RBI:

  • FPI limits in corporate bonds are proposed to be increased to 15 per cent of outstanding stocks from the current 9 per cent

· Specified categories of Government securities would be opened fully for non-resident investors, along with domestic investors as well

· New Debt-based Exchange Traded Fund (ETF) consisting primarily of Government Securities to be floated. This is on the back of the massive success of the previous version. Further, it is expected to give retail investors access to Government securities, attractive investment option to Pension Funds and long-term investors

· A new legislation is proposed for laying down mechanisms for netting of financial contracts; this is to improve investor confidence and further expand the scope of Credit Default Swaps.

  • A new mechanism would be devised to further support the Partial Credit Guarantee Scheme floated by the Government, post the Union Budget 2019-20, to address the liquidity crisis of NBFCs. The Government will offer support by guaranteeing securities so floated.
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Excellency, my good friend President Macron,

Mr. Maurice Levy, Chairman of the Publicis Group,

Participants from around the world,


Congratulations to the organisers for successfully organising Vivatech in this difficult time.

This platform reflects the technological vision of France. India and France have been working closely on a wide range of subjects. Among these, technology and digital are emerging areas of cooperation. It is the need of the hour that such cooperation continues to grow further. It will not only help our nations but also the world at large.

Many youngsters saw the French Open with great enthusiasm. One of India's tech companies, Infosys provided tech support for the tournament. Likewise, the French Company Atos is involved in a project for making the fastest super computer in India. Whether it is France's Capgemini or India's TCS and Wipro, our IT talent is serving companies and citizens all over the world.


I believe - Where convention fails, innovation can help. This has been seen during the COVID-19 global pandemic, which is the biggest disruption of our age. All nations have suffered loss and felt anxiety about the future. COVID-19 put many of our conventional methods to test. However, it was innovation that came to the rescue. By innovation I refer to:

Innovation before the pandemic .

Innovation during the pandemic .

When I speak about innovation before the pandemic, I refer to the pre-existing advances which helped us during the pandemic. Digital technology helped us cope, connect, comfort and console. Through digital media, we could work, talk with our loved ones, and help others. India's universal and unique bio-metric digital identity system - Aadhar - helped us to provide timely financial support to the poor. We could supply free food to 800 million people, and deliver cooking-fuel subsidies to many households. We in India were able to operationalise two public digital education programes- Swayam and Diksha - in quick time to help students.

The second part, innovation for the pandemic refers to how humanity rose to the occasion and made the fight against it more effective. In this, the role of our start-up sector, has been paramount. Let me give you India's example. When the pandemic hit our shores, we had inadequate testing capacities and shortage of masks, PPE, Ventilators and other such equipment. Our private sector played a key role in addressing this shortage. Our doctors adopted tele-medicine in a big way so that some COVID and other non-COVID issues could be addressed virtually. Two vaccines are being made in India and more are in the development or trial stage. On the Government side, our indigenous IT platform, Arogya-Setu enabled effective contact tracing. Our COWIN digital platform has already helped ensure vaccines to millions. Had we not been innovating, then our fight against COVID-19 would have been much weaker. We must not abandon this innovative zeal so that we are even better prepared when the next challenge strikes.


India's strides in the world of tech and start-up are well-known. Our nation is home to one of the world's largest start-up eco systems. Several unicorns have come up in the recent years. India offers what innovators and investors need. I invite the world to invest in India based on the five pillars of: Talent, Market, Capital, Eco-system and, Culture of openness.

Indian tech-talent pool is famous across the world. Indian youth have given tech solutions to some of the world's most pressing problems. Today, India has One Point One eight billion mobile phones and Seven Seventy-Five million internet users. This is more than the population of several nations. Data consumption in India is among the highest and cheapest in the world. Indians are the largest users of social media. There is a diverse and extensive market that awaits you.


This digital expansion is being powered by creating state-of-the-art public digital infrastructure. Five hundred and twenty-three thousand kilometres of fibre optic network already links our One hundred and fifty six thousand village councils. Many more are being connected in the times to come. Public wi-fi networks across the country are coming up. Likewise, India is working actively to nurture a culture of innovation. There are state-of-the-art innovation labs in Seven Thousand Five Hundred schools under the Atal Innovation Mission. Our students are taking part in numerous hackathons, including with students overseas. This gives them the much-needed exposure to global talent and best practices.


Over the past year, we have witnessed a lot of disruption in different sectors. Much of it is still there. Yet, disruption does not have to mean despair. Instead, we must keep the focus on the twin foundations of repair and prepare. This time last year, the world was still seeking a vaccine. Today, we have quite a few. Similarly, we have to continue repairing health infrastructure and our economies. We in India, implemented huge reforms across sectors, be it mining, space, banking, atomic energy and more. This goes on to show that India as a nation is adaptable and agile, even in the middle of the pandemic. And, when I say - prepare-I mean: Insulating our planet against the next pandemic. Ensuring we focus on sustainable life-styles that stop ecological degradation. Strengthening cooperation in furthering research as well as innovation.


The challenges our planet faces can only be overcome with a collective spirit and a human centric approach. For this, I call upon the start-up community to take the lead. The start-up space is dominated by youngsters. These are people free from the baggage of the past. They are best placed to power global transformation. Our start-ups must explore areas such as: Healthcare. Eco-friendly technology including waste recycling, Agriculture, New age tools of learning.


As an open society and economy, as a nation committed to the international system, partnerships matter to India. France and Europe are among our key partners. In my conversations with President Macron, In my summit with EU leaders in Porto in May, digital partnership, from start-ups to quantum computing, emerged as a key priority. History has shown that leadership in new technology drives economic strength, jobs and prosperity. But, our partnerships must also serve a larger purpose, in service of humanity. This pandemic is not only a test of our resilience, but also of our imagination. It is a chance to build a more inclusive, caring and sustainable future for all. Like President Macron, I have faith in the power of science and the possibilities of innovation to help us achieve that future.

Thank you.