As 2017 draws to a close we look back at some of the top developments in the financial sector and summarise the dominant trends that have emerged from the year gone by.
Right to Privacy – A Fundamental Right
On 24th August 2017, the Supreme Court in a landmark ruling confirmed that privacy is a constitutionally protected right that emerges primarily from the guarantee of life and liberty in Article 21 of the Indian Constitution, and also arising across a whole raft of fundamental rights contained in Part III of the Indian Constitution. The privacy ruling has far-reaching implications on the use of personal data in the financial services sector and has allowed for better understanding of core issues surrounding informational privacy, data protection and opened reflection on key questions that need to be addressed.
The Goods and Services Tax Act (GST) 2017
Touted as the biggest tax reform since independence, the Goods and Services Tax Act came into effect on 1st July 2017. Paving the way for a unified market, GST replaced a myriad of taxes levied by the central and state governments. The benefits of the GST are expected to come from the elimination of cascading effect of taxation, greater efficiency, widening of the tax net and improving the ease of doing business in India. Hiccups in implementation marred the reform and the year also saw a reworking of the items within the four-slab tax structure. The New Year is expected to see a simplification of the return-filing process, an increase in the GST tax base and convergence of the multiple rates.
Crackdown on large Non-Performing Assets
Aimed at cracking down on large non-performing assets (NPAs), the Reserve Bank of India in June 2017 ordered lenders to immediately start insolvency proceedings against the country’s top 12 defaulters, accounting for about 25 per cent of the current gross NPAs of the banking system, by referring them to the National Company Law Tribunal (NCLT) for resolution. In August 2017 it issued a second list with 28 defaulters, directing banks to either resolve the stressed accounts or refer them to the NCLT by December 31st. These 28 accounts together account for about 40 per cent of bad loans in the system.
To do away with lenders holding on to stressed assets in their balance sheets, RBI under the insolvency code has stipulated that once an account is referred to the NCLT, the lender will have to make a provision of 50 per cent on the account and 100% if it goes for liquidation. To ensure a time-bound resolution, the insolvency code, has also warranted that once an account is referred to NCLT, lenders get 180-days for the resolution process which can be further extended by 90 days, post which the account goes for liquidation.
Aadhaar being made mandatory
The year saw Aadhaar being mandated for a host of services with the Government setting a deadline of December 31st for linking Aadhaar with several financial services and welfare schemes. Just two weeks before the deadline the Supreme Court extended the timeline to March 31, 2018. Amid growing concerns over privacy and data protection, the mandatory nature of implementation, comes in the backdrop of the Supreme Court commencing the final hearing on the petitions challenging the Aadhaar scheme from January 17 next year.
Evolving Fintech Space
Coming in the backdrop of demonetisation and Government’s efforts towards all things digital, 2017 saw a lot of buzz in the Fintech space, with for instance, over 225 companies being founded this year alone in just the alternative lending space. Riding on Aadhaar, India Stack and the UPI framework among others, the sector has witnessed tremendous action driven by established players alongside newer entrants creating a niche for themselves. The regulatory move towards inter-operability of wallets, guidelines for peer-to-peer lending paving way for P2P players to break into the into the mainstream financial services market and the most recent move to do away with MDR charges on debit card payments upto Rs 2000, were some of the key milestones for the sector. The coming year promises to be more interesting for players operating in the space.
We would like to wish you a very happy new year and look forward to your continued readership in the coming year.