DFS Secretary M Nagaraju underscored the role of tax incentives and enhanced credit accessibility in bolstering India’s economic expansion
The tax relief measures announced in the budget are expected to improve liquidity in the banking system, enabling banks to extend greater credit to essential sectors and support broader economic growth, according to M. Nagaraju, Secretary of the Department of Financial Services (DFS).
In an exclusive interview with Outlook Business, M Nagaraju underscored the role of tax incentives and enhanced credit accessibility in bolstering India’s economic expansion. He emphasized that increased lending capacity would help drive investment, strengthen key industries, and create employment opportunities, reinforcing the country’s growth trajectory.
You mentioned that start-up funding aims to support start-ups from the sectors where there is credit gap. Could you elaborate on which specific sectors or types of start-ups you are primarily looking to support through financing?
Start-ups often find it challenging to secure funding from the banking industry due to the inherent risks associated with them. As a result, they typically seek funding at later stages, such as Series B or Series C. In the early stages, when a start-up is built around a promising idea, equity financing is generally the most critical requirement.
With this in mind, we aim to utilize the announced fund to provide both equity and debt financing based on the risk parameters of each start-up. Additionally, we plan to mobilize further funds from the financial system to leverage this fund effectively. Previously, when a fund of Rs 10,000 crores was announced, we were able to recycle and deploy nearly Rs 90,000 crores through a structured funding and recycled repayment approach. It is like once we fund and get back and then fund again. We anticipate a similar scale of fund availability for the start-up ecosystem in the country, ensuring continued financial support for promising ventures.
When will details regarding applying for the fund come out and when will it start getting disbursed? Which body will disburse the funds?
Funds will be available quickly. We will have one of our banks as a manager. So, they will roll out. Given our extensive experience in implementing such initiatives, along with well-established systems and regulations already in place, we are confident that the process will be executed efficiently and without delays.
A lot of credit guarantee schemes have been introduced for farmers, MSMEs etc. At a time when the Reserve Bank of India (RBI) has been cautioning about defaults, how do you plan to navigate the risks associated with credit?
At present, Non-Performing Assets (NPAs) are at their lowest level in the past 20 years, standing at just 0.57%. We have no concerns regarding NPAs, as our risk assessment criteria are exceptionally robust and strictly enforced. We do not extend financing unless applicants meet our well-defined underwriting principles.
Regarding concerns about agricultural financing leading to NPAs, I do not believe this to be an issue. In fact, even within the agriculture sector, our NPAs remain at a manageable level. Last year, the total ground-level credit extended to the agriculture sector was approximately Rs 25 lakh crore. This year, our target is slightly higher, at over Rs 27 lakh crore.
Additionally, with the enhancement of the Kisan Credit Card (KCC) limit from Rs 3 lakh to Rs 5 lakh, we anticipate that more than 80 lakh farmers will become eligible to avail credit up to Rs 5 lakh. The popularity of KCC is largely due to its favorable interest rates. We provide loans under KCC at a 7% interest rate, with an additional 3% incentive for prompt repayment. As a result, the effective interest rate charged to farmers is just 4%, making it one of the most affordable credit options available.
To ensure that farmers receive credit at the lowest possible cost, the government offers an interest subvention to lending institutions—further reducing the financial burden on farmers and supporting the agricultural sector’s growth.
You have given a target of Rs 30 lakh crore of funding for the renewable energy sector to the banks by 2030. But currently, banks have around Rs 7000 crore. Will it be feasible for banks to meet the target?
The Prime Minister has set a target of achieving 500 GW (gigawatts) of renewable energy capacity by 2030. To support this, banks from both the public and private sectors have committed to financing the initiative. The total estimated funding requirement for this goal is Rs30 lakh crore, with Rs10 lakh crore allocated to public sector banks and Rs 20 lakh crore to private banks.
Based on our business plans, we are confident that we can provide Rs 10 lakh crore in financing for the renewable energy sector. Importantly, this does not require any changes to existing policies, as the current regulatory framework is sufficient to support these initiatives. The disbursement of funds will depend on the companies bidding for these projects, their financial health, creditworthiness, repayment schedules, and any history of NPAs. Each proposal will be carefully assessed before financing is provided.
You mentioned that income tax relief will help boost deposit growth. But with equity being a preferred mode of investment these days, do you really think deposits will grow?
The finance minister has announced several tax relief measures. One of the key changes is the increase in the tax exemption limit to Rs12 lakh, which applies to all taxpayers. Additionally, for senior citizens, the exemption limit has been raised from Rs 50,000 to Rs 1 lakh.
Based on our data and certain assumptions, it is estimated that these tax relief measures could result in an additional Rs 40,000 to Rs 45,000 crore entering the banking system over the next year. This inflow of funds will enable banks to extend more credit to essential sectors, thereby supporting economic growth.
So, that's how it works. And once you provide income tax relief, I think the business will be created, it establishes new industries, creates infrastructure, which will lead to employment, which will lead to salaries. Again, the circular economy system works out.