Banking sector expectations from Union Budget 2025: Tax rebates, low-cost CASA accounts, digital infra push and more

The banking sector expects the Union Budget 2025 to roll out initiatives such as tax rebates on savings instruments, a push for digital infrastructure, and deposit mobilisation-friendly schemes.

Indian banks have remained resilient amid global challenges and the industry players expect government support in carrying forward the rapid adoption of cutting-edge technology, modernisation of core systems and augmenting digital banking.

As Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget for FY 2025-26 on February 1, banking services sector experts are hopeful of a host of measures to aid growth.

The banking sector has been seeing continuing pressure on low-cost CASA (current account and savings account) deposits and single-digit loan growth. For most banks, the share of CASA deposits in total deposits has declined. The increasing cost of funds and low credit growth have weighed on the bank’s net interest margins. The industry players seek the government’s policy focus to address these challenges.

_Here are the expectations of the banking industry from the upcoming budget: _

Tax rebate on savings instruments

The banking industry expects the Finance Minister to announce some tax incentives for investment instruments such as fixed deposits and saving accounts. Such measures will encourage the middle class to keep funds in savings accounts. The industry has also sought measures like treating fixed deposit interest as a separate entity and easing KYC norms for NRIs to attract deposits.

Tax sops for wholesale loans, easy policy for bad loan acquisition

The industry is expecting some tax incentives for large loans to corporates or wholesale loans to drive up lending and boost economic growth. Private sector investment has lagged behind public expenditure, which has resulted in a moderation in economic growth.

The industry believes that tax sops to wholesale loan portfolio and easing the acquisition of bad loans from the banking industry would benefit the sector, which has seen moderating credit growth in the wholesale sector.

Focus on digital infrastructure to drive financial inclusion

The industry expects some measures in the Union Budget to boost the digital infrastructure of financial services providers which will help drive financial inclusion mainly in small cities and towns. Steps to boost digital literacy and the digital financial ecosystem are also expected to create a secure financial environment.

Policy on FDI in public sector banks

The banking industry expects some policy measures such as more Foreign Direct Investment (FDI) in state-run banks against around 20% at present and mergers of cooperative banks in the budget. It is also hoping for tax rationalisation for foreign banks.

Measures for credit growth

The industry expects measures to drive up loan growth and lowering fund costs to increase margins. A recent RBI report showed that credit growth to the industry was 8.1% as of the fortnight ended November 29, 2024, against 5.5% for the same fortnight of the previous year. Though credit to infrastructure, chemicals and chemical products, petroleum, and coal products improved, banks need to take credit growth to double digits.

Credit growth to the services sector dropped to 14.4% in the period under review 22.2% for the corresponding fortnight of the previous year.

Lower growth in credit to NBFCs and trade segment dragged the growth.

Personal loan growth also dipped to 16.3% in the period from 18.7% a year ago due to a fall in growth of ‘other personal loans’, ‘vehicle loans’ and ‘credit card outstanding’.

Bottomline The government has rolled out many schemes like Pradhan Mantri Jan Dhan Yojana (PMJDY), Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana, MUDRA, and Stand Up India, in the past Budgets for higher financial inclusion. The banking sector expects the government to also remain focused on boosting deposits and streamlining lending in the upcoming Budget.