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Impact of Union Budget 2022 on the Banking Sector in India

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While the Union Budget is important for all sectors in the Indian economy, its effects are especially pronounced on financial markets and the banking sector. So, on Tuesday, February 1, 2022, as the Union Budget for 2022-23 was announced by Finance Minister Nirmala Sitharaman, and what was in store for its residents, taxpayers and investors alike.

As the date of the budget presentation drew near, several experts from the banking sector expressed what they expected from the announcement. These expectations focused on easier tax compliances, increased liquidity for Non-Banking Finance Companies and FinTech companies, and a boost for digitisation. 

Let’s look at the impact of Union Budget 2022 for banking sector in India.

Credit Cycle

  • Upon the onset of COVID-19, an emergency line of credit was established mainly for SMEs and extended to restructured companies falling under the Kamath Plan. The limit was last raised to Rs 4.5 lakh crore. To widen the scope of this assistance and include more industries, the limit has been increased to Rs 50, 000 crore for the hospitality industry.


  • Budget 2022 also mentions the government’s plans to bring in sovereign green bonds, which is a novel idea for India's banking and finance sector. This will allow the government to borrow through such bonds to mobilise the resources for green infrastructure.


  • The current budget’s emphasis on sectors such as solar energy, EVs, housing, and more, could result in an increase in demand for credit. Thus, it could potentially result in a change in the long-depressed credit cycle.


Digitised Banking

  • Budget 2022 announced that 1.5 lakh post offices in India would be connected to the core banking system. This move will enable people to bank online and transfer money within post office accounts and other banks. This step has been taken keeping the rural population and senior citizens in mind, so that more people can enjoy the convenience of digital banking. 


  • Furthermore, the budget also stressed the importance of digital payments, encouraging a digital banking and FinTech-based ecosystem. To support the same, the budget proposed that 75 Digital Banking Units (DBUs) be set up in 75 districts by scheduled commercial banks.


  • The Union Budget also announced that the RBI would be introducing India’s own digital currency. The digital rupee will be launched in the financial year 2022 – 23 with blockchain and other technologies. 


Other Union Budget banking sector takeaways

  • The capitalisation of banks has been an area of interest for a while. Although banks are well-funded, fresh capital infusion can be integral to future growth. Union Budget 2022 has provided an amount of Rs 15, 000 crore for this purpose. 


  • To reduce the overall non-performing assets of public sector banks, the budget has mentioned the initiation of the Bad Bank process. The process has been introduced under National Asset Reconstruction Company Limited (NARCL). Additionally, with a progressive Insolvency and Bankruptcy Code resolution, the process will be sped up as the exit-time will reduce from 2 years to 6 months.


  • As far as banks are concerned, the main point of interest is government deficit and borrowing, affecting liquidity for the year. While the government has been supporting growth, the gross borrowing programme is still high at Rs 14.95 lakh crore. This number poses two issues: interest rates that will remain strained and challenges in terms of liquidity.


Read more on which sectors are getting the most investment in budget 2022 by clicking here. 


The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.

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