Budget 2024: What the fintech sector wishes for this budget

Triggered by the predatory practices of illegal digital lending apps, the RBI issued its digital lending guidelines in September 2022.

Although India’s finance minister Nirmala Sitharaman has said that the upcoming Budget to be presented on February 1 is merely a vote-on-account (that only approves the continuation of existing programmes) and therefore not a full-fledged Budget, expectations are rife about some sops being granted to taxpayers and some industries.

In a recently-released report, BankBazaar.com puts forth a list of asks that the fintech sector has from the government. Not all these demands may fall within the purview of the budget but they can be viewed as an all-encompassing list of what the fintech sector wishes for in 2024.

Fast-tracking account aggregator (AA) framework – It was in September 2021 that the government launched the AA framework – that facilitates safe sharing of an individual’s data across financial institutions such as banks, insurance companies etc. with his/ her consent. The objective: instead of having to submit documents to each financial institution, an individual can digitally share their financial information provided to one institution, with another. The individual has to register with an AA, an RBI regulated entity.

The BankBazaar.com report talks about bringing all banks (private and public sector) on board the AA system and getting the maximum number of bank accounts integrated into this framework. Going by the latest data, a few banks such as City Union Bank, Dhanlaxmi Bank, RBL Bank, South Indian Bank etc. are still not part of the AA framework.

It also talks about bringing the Goods and Services Tax Identification Number or GSTIN (code that identifies a GST-registered business in India) into the AA framework.

Once that happens, it will pave the way for retail consumers and small businesses to access credit across several lenders in a fully digital way.

Inclusion of additional documents in DigiLocker – The BankBazaar.com report suggests that more documents such as the EPFO passbook, ePAN, and form 26 AS (statement showing tax credit) be included in DigiLocker. This will ensure that customers have convenient access to their documents and are able to share them with financial institutions for quick disbursal of credit.

Launched by the Ministry of Electronics & IT, DigiLocker is a secure cloud-based platform for storage, sharing and verification of documents. One can sign up for DigiLocker using their mobile or Aadhaar number and then upload their documents.

Also read: Coming soon: A new regulator to monitor your fintech apps. Here's what a fintech SRO can do

Level-playing field between digital and offline lenders – Triggered by the predatory practices of illegal digital lending apps, the RBI issued its digital lending guidelines in September 2022.

The guidelines put the onus on banks and NBFCs to ensure that loan servicing happens directly with the lender’s (regulated entity) account and not the digital lending app/ platform, loan-related costs are disclosed upfront, digital lending apps / platforms do not misuse customer data, and grievance redressal officers are engaged, among other things.

The BankBazaar.com report suggests that a level-playing field be created between online and offline lending. “There is a need to extend this consumer-centric regulation implemented for the digital lending industry to the offline loan industry, too. This principle of level playing field is important for the growth of the FinTech industry,” says the report.

Legislations related to implementation of the DPDP Act – The Digital Personal Data Protection Act, 2023 (DPDP Act) provides for those in possession of data, to follow adequate protection measures, request consent before use of data, and even face hefty penalties in case of data breaches.

The DPDP Act defines a ‘consent manager’ as a third-party entity registered with the Data Protection Board that enables individuals to give, manage and withdraw consent for data use by a ‘data fiduciary’ such as a financial institution or the government, for example.

In this context, the BankBazaar.com report calls for the consent manager ‘architecture’ (processes that an organization must follow) to be made ready before the DPDP Act is implemented. “In the absence of that, organisations (in possession of data) will have to redo their consent-related processes and tech for integration with consent managers,” says the report.

Parity in taxation of listed & unlisted equities – Listed and unlisted equity are taxed differently. Capital gains (in excess of Rs 1 lakh per year) from sale of listed equity shares held for more than 12 months are treated as long-term in nature and are taxed at a flat 10 percent.

On the other hand, in the case of unlisted shares, long-term capital gains tax of 20 percent (with indexation benefit) apply for a holding period of over 24 months.

The report recommends the government consider treating unlisted equity at par with listed equity for long-term capital gains taxation. This will help improve the attractiveness of start-up and unlisted fintechs for those making equity investments in them. Such taxation will also benefit the employees of fintechs who have been granted ESOPs or employee stock option plans.

To ensure no misuse by fraudulent entities, the report suggests that this benefit be made available only to entities that meet certain requisite capital and revenue requirements, and are registered with a regulator or self-regulatory organization.