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FinTech will help propel the Indian economy

Technology, in all its forms, has become a common mainstay in our lives today. Advancements in technology have brought about a significant change in the way traditional financial services organisations operate. The traditional cash-driven Indian economy has taken up the technologies opportunity, triggered by the Covid-19 pandemic and various government initiatives that have been implemented over the years. From payments, lending, wealth management, investing, credit reporting, etc., technology is disrupting the entire financial services value chain. In recent times, innovations in mobile money and peer-to-peer (P2P) lending have also led to greater penetration of credit across the country.

While change was already on its way, the Covid-19 crisis has sped up the way we transact, deal, record, and use money. The emerging ‘Low-Touch, High-Tech’ economy is literally driving enterprises to migrate their businesses online, and thus FinTech is poised to boom in the coming years. Traditional companies and laid-back customers who had reservations about adopting innovations such as digital banking, for example, will quickly get off the fence, as the digital transaction mode grows by leaps and bounds.

Additional Read – Pre-budget expectations for the retail consumer

There is a growing connection between NBFCs and the FinTech ecosystem. Financial services companies are using technology more than ever across their entire process loop right from lead generation, customer on-boarding, underwriting, disbursements and collections. This amalgamation approach has helped enrich the customer’s experience digitally multi-fold. New technologies like ML, IoT, AI, Blockchain, and Cloud computing are the major drivers of this movement and organizations that take these up would achieve far greater success than those who do not.

On the other side of the coin, is the need for FinTechs to work towards ensuring greater confidence amongst the large Indian consumer base which has always been very wary in using technology for financial transactions. The other challenge that continues to hamper the rapid growth of FinTechs is the expanse of the Indian population across the country having access to Internet, smart phones and continuous electricity, at the most basic level, to power up their tech devices.

Additional Read – Tata Capital and Emerging Trends in B2B Financing

As the FinTech industry grows and evolves, it has the potential to further enhance the entire value chain and bring into the fold the unbanked and till now, unserviced sections of the Indian population. Improved accessibility, faster and newer payment methods should remain the focus of FinTech applications in the coming years. FinTech will continue to disrupt the functioning of the financial services industry, and only time will tell when the Indian consumer well and truly jumps onto the tech bandwagon to run transactions for all of his or her needs.

Pre-budget expectations for the retail consumer

Indians across sectors and economic classes are eager to hear what awaits in the upcoming financial year, with the Union Budget 2022 just around the corner.

The 2022 Budget comes at an intriguing juncture. On the one hand, the Government is gearing up to fulfil the $5 trillion economy dream by 2025; on the other, the central and state governments are battling yet another wave of the coronavirus pandemic along with its socio-economic consequences.

Budget 2021 focused on the retail consumer, with several new schemes and policies announced. From PM Aatmanirbhar Swasth Bharat Yojana, One Nation One Ration card to the National Education Policy, some significant announcements laid the foundation for the Aatmanirbhar Bharat vision.

Many hopes are pinned on the upcoming Budget to give the much-needed boost to the industry and empower the retail consumer as the economy reels under the pressures and disruptions of the prolonged pandemic.

Retail Customers may expect the following from the Budget 2022:

Changes in tax structure

The upcoming Budget 2022 comes with the ray of hope that there might be tax rate cuts for the average citizen, specifically the salaried class.

No such tax reliefs or rate cuts were announced in the last budget. Only senior citizens of age 75 years or more, having income from pension and deposits, were exempted from filing return of income. Salaried employees continue to be taxed at a relatively higher rate of tax, which results in lower savings. Further, adding a new tax structure under section 115BAC of Income Tax Act, 1961, offering a lower tax rate by giving up tax deductions on savings and expenses, has added to the complexity. Budget 2022 hopefully should see a rationalisation of income tax rates and tax structures.

With the rise in medical expenses due to Covid 19 and incidence of critical illnesses, the limit of deduction for medical insurance premiums and expenses under section 80D of the Income Tax Act, 1961 should ideally see an increase from the current limit of Rs. 25,000.

Additional Read – Taxation and the union budget. All you need to know

Emphasis on moving domestic savings into financial assets.

India needs investments to revive the economy and drive growth after COVID-19. Investments can either come through an increase in FDI flows or higher domestic investments from Indian citizens.

However, financial literacy remains restricted, and many Indians still resort to conservative approaches to saving and investing funds. Encouraging citizens to channel domestic savings to investments and financial assets will require continued financial awareness and literacy campaigns. Adequate attention needs to be given to streamlining the process of investing in financial assets to incentivise first-time investors.

An amendment in Budget 2022 to increase the limit of tax-saving mutual funds from Rs.1.5 lakh to Rs.2 lakh will be a welcome move to increase domestic investments.

A boost for auto manufacturers and ancillaries

The automobile sector contributes approximately 7% to the overall GDP of India. This sector is under immense pressure with rising commodity prices. Additionally, the scarcity of semiconductor chips in 2021 has forced companies to reduce production drastically.

Budget 2022 may bring new policies and initiatives to revamp the automotive sector. The industry would welcome rationalisation and uniformity in GST rates on all auto parts and new policy initiatives for inverted duty structures for auto components.

Furthermore, to increase demand and augment the growth of the electric vehicle segment, Budget 2022 might roll out incentives such as reducing GST rates for consumers.

Impetus for home buyers

 ‘Housing for All’ is a priority that is expected to take centre stage in Budget 2022 to provide the much-needed impetus to the housing sector. Additionally, an increase in demand for housing will generate employment and support ancillary SMEs and MSMEs extensively.

The Budget might also see an increase in the tax deduction permissible on housing loans for interest under section 24(B) of the Income Tax Act, 1961, from the current level of Rs.2 lakhs. Further, it could percolate to a rise in the deduction limit under section 80C of the Income Tax Act, 1961 for housing loan principal repayment.

Additional Read – Key Things to Know about the Union Budget 2021

Investment in Infrastructure

In the upcoming Budget, infrastructure announcements may emerge as a top priority for the growth and development of India. Budget 2022 might see announcements for the development of new roads, highways, railways, hospitals, houses, and electric towers to increase Government spending while making the life of the average citizen comfortable and convenient.

Enhanced intercity connectivity is essential for forming smart cities and accelerating the pace of development of Tier II and Tier III cities.  It is expected that Budget 2022 should allocate funds to introduce new technologies such as Metro Lite and Metro Neo for increased mobility.

All eyes are peeled on the Budget 2022 to give the economy a booster shot to revitalise and stimulate growth post the onslaught of the Coronavirus. The upcoming Budget might bring new schemes and policies to invigorate and encourage increased consumer spending. With new incentives for home buyers, significant tax reliefs, boosts to auto manufacturers, and investments in infrastructure, it is expected that Budget 2022 will unleash new opportunities for the retail customer.

Budget 2022 should prepare India for an economic revival and accelerate growth towards making the $5 trillion Indian economy a reality.

Tata Capital and Emerging Trends in B2B Financing

Change is inevitable in the world of business, and to attain success, organisations must constantly adapt to changing circumstances and evolving customer expectations. With the pandemic, the pace of change has only accelerated. Businesses and customers have been forced to work remotely, re-prioritise health and safety, transact digitally, and quickly adapt technology to stay relevant.

Financial services institutions have had to move rapidly to keep up with expressed and latent customer expectations. We, at Tata Capital, are reimagining B2B lending every day to not only adopt but to define and create the new normal, with the single objective of supporting Indian businesses in their growth journey.

Let’s take a look at some emerging trends in B2B financing.

Digital but Personal

Today, many legs of the acquisition, sanctioning, disbursal and servicing parts of the customer journey – for e.g. KYC processes, credit assessments, transacting – are digital, while other parts of loan documentation, field verification etc. are still manual. It is expected that this continuing digitisation trend would accelerate the adoption of a digitally-enabled seamless customer experience at a faster pace supported by the penetration of smartphones and growing prevalence of internet services across the country.

However, businesses today expect lenders to customise their offerings as per their specific needs. Off-the-shelf solutions are no longer relevant in the current complex and dynamic business environment. We, at Tata Capital, fulfil these complex customer needs vide our deep understanding of the nuances of the respective businesses, backed by tech-enabled systems and processes.

Automation

Automation and streamlining rudimentary processes such as product enquiries, application status tracking, disbursement status, interest certificates, TDS certificates etc., has accrued immense benefits to the customers. Robotic Process Automation at Tata Capital enables customers to gain 24*7 access to the services, resulting in greater transparency, visibility, and the flexibility to resolve their queries at the click of a button. In fact, RPA combined with artificial intelligence and self-learning algorithms has also enabled Tata Capital to make these processes more transparent, error-free, and efficient.

Cash-flow Based Lending

In the last few years, besides upgrading operational workflows and processes, the core foundation of B2B lending is also undergoing a paradigm shift.

Traditionally, financial institutions extended credit facilities based on asset/collateral based models wherein the strength of the balance sheet and collateral value served as the underlying basis for sanctioning loans. However, most small businesses and startups found it difficult to access due to this traditional approach of underwriting. With today’s emerging startup economy and non-linear success stories, lenders like Tata Capital are adopting alternative means of credit underwriting methods e.g. cash flow-based lending, etc.

Cash flow-based lending enables lenders to lend based on the customer’s cash flow. Tata Capital leverages advanced technology integrated with predictive analytics and artificial intelligence to analyse different data points for assessing the borrower’s creditworthiness.

Author:
Sarosh Amaria
Managing Director
Tata Capital Financial Services Limited

Role of NBFCs in accelerating financial inclusion

Financial inclusion is one of the critical drivers of economic progress. As India aspires to develop into a burgeoning economy, accelerating financial inclusion is inevitable. India has a vastly underserved population, and including this extensive group in the financial mainstream will enable economic growth and social progress. Government initiatives such as Pradhan Mantri Jan Dhan Yojana (PMJDY), simplified KYC, Digital India Initiatives through Aadhar have so far complemented this process. The initial barriers of unavailability of suitable financial products, lack of physical infrastructure, or lack of skilled human resources have been addressed to a large extent. NBFCs have played a vital role in addressing some of the key challenges to financial inclusion and, over the years, have built a strong ecosystem to serve the unbanked and the underserved population of our country. Here are the key drivers that have contributed to financial inclusion in India:

Technology the enabler

Technology-led NBFCs have created opportunities by serving the diverse and underserved population across the country. The foundation pillars of the digital financial roadmap were built by Aadhar and India Stack. New smartphone users with their unique digital identities prefer to transact across digital platforms. Digital finance is thus increasing financial inclusion in a way that it is complementing or substituting traditional finance. Take, for example, a small-scale textile manufacturer in a tier 2 town, who can now avail a working capital loan almost instantly using a mobile application. Digital financial services have proved to be faster, efficient and cost-effective. Also, Covid – 19 has accelerated digital financial inclusion as contactless transactions, and cashless payments were preferred over traditional modes. The latest RBI data clearly shows that digital payments have recorded a growth of 30% during the year ended March 2021. This indicates faster adoption and deepening of digital transactions across the country (As per the newly constituted Digital Payments Index (RBI-DPI), the index rose to 270.59 at the end of March 2021, up from 207.84 a year ago.)

The ‘Trust ‘Factor

While technology has a crucial role in accelerating financial inclusion in India, the element of trust is equally important. The last mile connection to make financial solutions accessible and viable is attributed to the teams that work hard to create financial awareness programs, engage with the people and earn their trust. These teams gain insights into the challenges faced by the people and the opportunities that can be created to increase financial inclusion. This helps NBFCs to create specialized financial solutions to drive growth and development in the region. Curating financial literacy programs designed to empower rural women is one way to facilitate inclusive growth. Similarly, digital finance programs to educate the youth in a particular village will give the required knowledge and skill to improve their livelihoods. A consistent approach with a dedicated team fosters trust and the community at significant gains with better access to financial products and services.

Simple and Easy Access to Financial Solutions

India’s population is huge and diverse. The way to cultivate financial inclusion is to keep the product design simple and tailor-make it to meet the complex needs of a low-income individual or a family. Take, for example, Tata Capital’s working capital loans for SMEs and MSMEs. The loan structure is designed to be hassle-free, quick and simplistic. Another critical category is insurance – which too is now made available in an uncomplicated way. For instance, NBFCs partner with local panchayats to distribute specialized health insurance products, i.e. a cover only for dengue or an insurance cover to protect the farmer against loss of crop or even cattle. NBFCs have over the years invested in ingenious distribution networks and products to make finance easily accessible to the remotest parts of the country.

In conclusion, NBFCs have immense potential to provide financial solutions to those who need them the most. RBI, in its report, has stated that there has been a 24% improvement in Financial Inclusion (FI) as measured by RBI’s financial Index between March 2017 and March 2021. NBFCs will have to keep innovating their offerings, invest in technology and continue to deliver on its promise to bring prosperity to the people of our country.

Author:
Rajiv Sabharwal
MD & CEO – Tata Capital

Health Insurance Premiums – A cause for concern? Here are 3 Ways you can reduce your Mediclaim costs substantially

With the second wave of the ill-fated Covid-19 paralyzing healthcare systems significantly, medical insurance claims are sure to rise up in the months to come. Consequently this will also result in an increase in insurance premiums if you’re looking to invest in a new policy or renew an existing one.

With the number of insurance companies growing each day, choosing a policy that is affordable as well as most suitable to your financial goals can be quite a task.

If you are somebody facing this dilemma, here are 3 ways in which you can reduce your mediclaim costs in a jiffy:

1. Purchase a family floater policy:

Most insurance companies provide a considerable discount on premiums if you add 2 or more people to the same insurance cover. Utilizing this feature will enable you to insure more people in your family at a more economical value.

Additional Read: 5 Reasons to Buy Health Insurance if you don’t have one

2. Use wellness initiatives

Due to the rise of health issues in individuals triggered by general lifestyle habits, a lot of insurance companies have now devised wellness initiatives to benefit purchasers. These wellness initiatives are basically offers that result in a cashback or lower premium if you are adhering to conditions like maintaining an ideal weight or working towards a healthier lifestyle.

Participating in these wellness initiatives will not only help you lead a healthier life, but also save you quite a few bucks in the form of incentives – sometimes up to 100% of the premium amount.

3. Combine a basic plan with super top up

To make your insurance policy relatively more cost-effective, you can also club a basic plan with a top up plan. This means that over and above your basic plan if you are looking for an additional coverage – instead of purchasing a new policy and paying a higher premium, you can simply buy a booster or top up plan. This may be a little expensive, but substantially cheaper than purchasing a new policy.

Additional Read: All You Need to Know about Different Types of Insurance and Their Uses

An insurance policy is one of the most underrated but crucial components of a well-balanced financial portfolio that has positive implications – often when the insurer least expects it. Lastly, to make the policy more reasonable, it is also prudent to stay away from any life threatening bad habits and purchase one when you are at a young age.

Saurav Basu
Head – Tata Capital Wealth

Digitally Empowering SMEs in India

According to a February 2021 report by IBEF, the MSME sector contributes to almost 29% of India’s GDP annually. However, even with that kind of a share in the pie, the technological integration in terms of digital financing that this sector has adapted, is far lesser than other verticals of the economy.

Nonetheless, with the new crop of GenZ entrepreneurs taking over the reigns– this situation is gradually changing now. 

Changing the face of SME funding

To put it in perspective, digital financial services has not only helped revolutionizing the way SMEs approached external financing, but also made them more aware of the options that were available to them. Making them more open to the idea of accepting financing models that are hybrid or different but more customized towards their specific objectives.

1. Simple and Accessible:

From filling booklets of application forms to getting a one click approval, digital financial institutions have truly helped changed the game for SME entrepreneurs. Digital loan applications and disbursals have not only saved time and resources for these owners, but also made the entire journey easy to understand and error free. Moreover, with the help of digital portals and mediums, financial services can also be availed completely remote without having to visit a physical branch even once!

2. Minimum documentation:

Since an applicant’s digital footprint is easily available on demand, assessing the credit worthiness does not require submission of a pile of documents anymore. A simple online KYC is enough for loan verification, thus making it quick and hassle free to get the disbursal amount.

3. Repository for statements:

Lastly, with the help of these specialized financing portals – getting statements and documents do not require physical visits anymore. You can simply access the online repository on your account and get the documents of your choice on demand – thus saving you a considerable amount of time that can be apportioned to other important tasks.

Empowering SMEs

Enabling SMEs to be able to obtain loans and benefits through on click financing has resulted in more gains than were anticipated. Not only did it introduce the idea of digital transactions to the sector, but also reinstated their faith in technology that helping them incorporate it in other business functions as well. Hence, making the MSME sector more mobile and sustainable to face challenges of the post pandemic new normal.

Top 4 Personal Finance Rules That Always Work

The year 2020 changed our lives, including how we manage our money. Will 2021 be any different? Will the same money management mantras work as we step into the new normal?

2020 helped us realize that being reckless does not work, neither with our health nor with our money. Here are some simple and evergreen personal finance rules that will help you sail through these precarious times.

1. Change is the only constant

Always to be prepared for change. As we speak, changes are occurring in our economy, regulatory policies, politics, interest rates, and so on. Be aware and take the right guidance on your investments or when you are making changes to your investment strategy.

2. Save!

It is ideal to save when you are young, but remember it is never too late! The key is to be consistent and set a goal. Leverage technology to help you automate your savings plan. Once the plan is set in motion, stay motivated and save with discipline.

3. A well-diversified portfolio is important

Your risks need to be spread across various investment options. Pen down your short-term and long-term goals and then allocate your corpus across different buckets. For example, a direct equity exposure will entail volatilities, so don’t invest for a short time. Instead, stay invested to reap the benefits over a longer period of time, after researching properly. Include fixed deposits, balanced mutual funds, and other financial products in your portfolio.

Additional Read: Investing in different asset classes based on their risk

4. Get Insured

The year 2020 made us realize the importance of insurance. Having the right health insurance is crucial and cannot be ignored any more. Choose a plan that gives you adequate coverage for yourself and your family. DO read the fine print – understand what is covered and what is not covered in the policy. Similarly, take the effort and choose a life insurance policy that works best for you and your family. Don’t hurt your investments by not safeguarding yourself against financial losses in case of medical emergencies.

Author:
Saurav Basu
Head – Tata Capital Wealth