Inflow of Funds Will Support Economic Growth, Says M Nagaraju
M Nagaraju, secretary, Department of Financial Services talks about how the income-tax relief will set off a virtuous cycle. Edited excerpts
Will income tax relief in the Union Budget help boost deposits at a time equity is preferred more?
The finance minister has announced several tax-relief measures. One of the key changes is the increase in the tax-exemption limit to Rs 12 lakh. Additionally, for senior citizens, the [interest] 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 40,000–45,000 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. Once you provide income-tax relief, it establishes new industries, creates infrastructure, which leads to employment, [higher] salaries. The circular economy works out.
A fund-of-funds for start-ups was announced in the Budget. How will it be financed and disbursed?
Start-ups often find it challenging to secure funding from the banking industry due to inherent risks. As a result, they typically seek funding at later stages—Series B or C. In early stages, when a start-up is built around a promising idea, equity financing is generally the most crucial requirement.
With this in mind, we aim to utilise the announced fund to provide both equity and debt financing based on risk parameters of each start-up. Additionally, we plan to mobilise further funds from the financial system to leverage this fund effectively.
Previously, when a fund of Rs 10,000 crore was announced, we were able to recycle and deploy nearly Rs 90,000 crore through a structured funding and recycled repayment approach. Once we fund and get back [the money], we 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.
Funds will be available quickly. We will have one of our banks as manager. So, they will roll out [the funds]. Given our extensive experience in implementing such initiatives, along with well-established systems and regulations in place, we are confident that the process will be executed efficiently and without delays.
"NPAs are at their lowest level in the past 20 years. We have no concerns regarding NPAs, our risk assessment criteria are robust and strictly enforced"
How will DFS balance the credit guarantee schemes for agriculture and MSMEs in the Budget and the central bank’s caution about defaults?
At present, NPAs [non-performing assets] are at their lowest level in the past 20 years, standing at just 0.57%. We have no concerns regarding NPAs, 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. 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.
With the enhancement of the KCC [Kisan Credit Card] limit from Rs 3 lakh to Rs 5 lakh, more than 80 lakh farmers will become eligible to avail credit up to Rs 5 lakh. The popularity of KCC is due to its favourable interest rate.
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 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 agriculture sector’s growth.
Can banks meet the Rs 30 lakh crore target for renewables given they currently have only around Rs 7,000 crore invested?
The prime minister has set a target of 500GW 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 Rs 30 lakh crore, with Rs 10 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.