The Key Banking Announcements Made in Union Budget 2022

Introduction of a Centralised Digital Currency:

While presenting the Union Budget, the Finance Minister said that the Government has proposed to issue a Central Bank Digital Currency (CBDC) in the FY 2022-23, and the name of the digital currency will be announced soon. That said, the Government has also proposed imposing a tax of 30% on all virtual assets, such as Cryptocurrencies and Non Fungible Tokens (NFTs).

The Digital Rupee will use blockchain and other technologies and will be regulated by the Reserve Bank of India. "The introduction of Central Bank Digital Currency will give a boost to the digital economy. Digital currency will also be a cheaper and more efficient currency management system. It is therefore proposed to introduce Digital Rupee - using blockchain and other technologies - to be issued by the Reserve Bank of India, starting 2022-23.", said the Finance Minister.

The central bank had earlier raised serious concerns regarding decentralised private cryptocurrencies as they may possibly cause financial instability. The Digital Rupee is believed to change the way we do day-to-day transactions. However, the details of digital currency have not been laid out in detail yet.

75 Digital Banking Units by Scheduled Commercial Banks:

The Finance Minister has also announced that 75 digital banking units would be set up in 75 different districts.

"In recent years, digital banking, digital payments, and fintech innovations have grown at a rapid pace in the country. The government is continuously encouraging to ensure that the benefits of digital banking reach every nook and corner in a consumer-friendly manner.", said Ms Sitharaman.

"Taking forward this agenda, and to mark 75 years of independence, it is proposed to set up 75 digital banking units in 75 districts of the country by scheduled commercial banks. The financial support for digital payment ecosystem - announced in the previous Budget - will continue in 2022-23 as well.", she added. This will encourage further adoption of digital payments. And there will also be a focus to promote the use of payment platforms that are economical and user-friendly.

Post Offices Under Core Banking System:

To encourage the digital economy in rural India, the Finance Minister announced that all the 1.5 Lakh post offices would come under the core banking system. This will enable financial inclusion and access to accounts through internet banking, mobile banking (banking apps), ATMs, and provide online transfer of funds between post office accounts and bank accounts.

Currently, the post offices offer savings accounts and payment bank services through the India Post Payments Bank. Connecting post offices to the core banking system will be helpful, especially to farmers and senior citizens in rural areas, enabling interoperability and financial inclusion as they will be able to access their accounts online and transfer money within post office accounts and other banks.

Extension of Emergency Credit Line Guarantee Scheme to hospitality and related sector:

The Emergency Credit Line Guarantee Scheme (ECLGS) was announced by the Finance Ministry on 13th May 2020 as part of a 20 Lakh Crore comprehensive package to aid the Micro, Small, and Medium Enterprises (MSMEs) sector in view of the economic distress caused by the COVID-19 pandemic.

Ms Sitharaman announced that the ECLGS will be extended to cover the next fiscal year, i.e. till 31st March 2023. In addition, its guarantee cover will be expanded by Rs 50,000 Crore to the total cover of Rs 5 Lakh Crore.

"ECLGS has provided the much-needed additional support to more than 130 Lakh MSMEs, helping them mitigate the worst effects of the pandemic. The hospitality and related services, especially for MSMEs, are yet to regain their pre-pandemic level. Considering these aspects, the Emergency Credit Line Guarantee Scheme will be extended up to March 2023, and its guarantee cover will be expanded by Rs 50,000 Crore to the total cover of Rs 5 Lakh Crore." said the Finance Minister.

She further said that the additional amount would be exclusively earmarked for the hospitality and contact-intensive sectors.

Credit Guarantee Trust for Micro Small Enterprises Scheme Revamp:

The Credit Guarantee Trust for Micro Small Enterprises Scheme (CGTMSES) was launched by the Government of India to make available collateral-free (unsecured) credit to the Micro and Small Enterprises (MSEs) sector. Both the enterprises, existing and new, are eligible to be covered under the scheme. The Ministry of Micro, Small, and Medium Enterprises, Government of India, and Small Industries Development Bank of India (SIDBI) established a trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the scheme. Under the guarantee scheme, it provides coverage to the fund and non-fund (Letter of Credit, Bank Guarantee, etc.) based credit facilities up to Rs 200 Lakh per eligible borrower, without collateral or third-party guarantee.

The Finance Minister announced that the CGTMSES would also be revamped with a required infusion of funds. This will facilitate additional credit of Rs 2 Lakh Crore for MSEs and expand employment opportunities.

Amendments in Insolvency and Bankruptcy Code:

Ms Sitharaman also announced the proposed changes in the Insolvency and Bankruptcy Code (IBC) to enhance corporate resolution and facilitate the cross-border insolvency process.

"Necessary amendments will be made in the IBC for more efficient dispute resolution and enable seamless cross-border insolvency resolution.", said the Finance Minister.

Furthermore, for accelerated corporate exits, the Finance Minister announced that the timeline for voluntary winding up would be reduced to 6 months from the earlier 2 years.

During the Budget speech, Ms Sitharaman said, "Center for accelerated corporate exit to be set up. The process is to be digitalised and aims to bring the corporate exit time within 6 months. Re-engineering of the wind-up process is required to fasten the process.

To Sum-up:

For the banking sector, announcements related to capital for public sector banks have always been a focus area. However, in the Union Budget 2022, no such announcement was made. Besides, there was no mention of the privatisation of public sector banks announced in the previous Budget.

In spite of that, the announcements related to digital banking units, digital currency, and the inclusion of post offices under the core banking system will prove to be a great push towards Atma Nirbhar Bharat. The Government's focus on digitalisation, fintech, start-ups, and small businesses is a remarkable step that will help the related sectors to grow faster. Digital currency can be a significant step towards financial inclusion and cutting down the cost of payment services.

Warm Regards,
Ketki Jadhav
Content Writer

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