Banking on Change: How New Policies and Initiatives Are Shaping India's Financial Landscape
February 5, 2025, 11:02 am
Location: India, Maharashtra, Mumbai
Employees: 10001+
Founded date: 1994
Total raised: $1.15M
In the ever-evolving world of finance, change is the only constant. The recent Union Budget proposals and HDFC Bank's innovative grants program are two significant developments that could reshape the banking sector in India. These initiatives aim to attract deposits and support social impact startups, respectively. They reflect a broader trend of adaptation in a competitive landscape.
The Union Budget proposal to double the tax deduction at source (TDS) limit for senior citizens is a game-changer. It raises the limit from ₹40,000 to ₹1 lakh. This move is designed to encourage senior citizens to keep their money in banks. With banks struggling to mobilize deposits, this proposal could be a lifeline. Senior citizens are a reliable source of deposits. They prefer stability over risk. The new TDS limit allows them to invest more without incurring tax penalties.
Currently, the TDS rate is 10% for those with a Permanent Account Number (PAN) and 20% for those without. With an 8% return, senior citizens can now invest up to ₹12 lakh in a single bank without attracting TDS. Previously, this limit was only ₹6 lakh. This change could lead to a significant increase in bank deposits.
For others, the new limit allows investments of up to ₹6.5 lakh without TDS, assuming a 7.5% interest rate. This flexibility is crucial in a market where alternative investment avenues offer higher returns. The banking sector has seen a decline in deposit growth, with figures dropping from 12.6% a year ago to 10.2% as of December 2024.
The weighted average domestic term deposit rates (WADTDRs) have also seen a rise. Between May 2022 and November 2024, WADTDRs on fresh deposits increased by 243 basis points. This rise reflects the banks' need to attract more deposits amid stiff competition.
However, the cost of funds for scheduled commercial banks has increased slightly. The Economic Survey for 2024-25 indicates that while lending rates have adjusted faster than deposit rates, the overall yield on assets has remained stable. This has led to a marginal decline in net interest margins across all bank groups.
In this context, HDFC Bank's announcement of its eighth edition of the 'Parivartan Start-up Grants' program is noteworthy. This initiative aims to support social impact startups with grants of up to ₹50 lakh. The total budget for the program is ₹20 crore.
HDFC Bank has partnered with over 15 incubators and accelerators to support nearly 60 startups. These startups focus on various sectors, including AI for social good, climate innovation, and financial inclusion. The program culminates in 'Demo Day' events, where startups showcase their innovations to investors and the media.
This initiative is more than just financial support. It represents a commitment to sustainable development and the UN's Sustainable Development Goals (SDGs). By nurturing social startups, HDFC Bank aims to address critical societal needs. The selected startups will come from diverse regions across India, including Maharashtra, Karnataka, and Uttar Pradesh.
The Parivartan Start-up Grants program has already supported over 400 startups since its inception in 2017. This track record highlights HDFC Bank's dedication to fostering innovation and building a robust startup ecosystem.
The banking sector is at a crossroads. On one hand, traditional deposit mobilization faces challenges. On the other, innovative programs like HDFC's grants are paving the way for a new generation of entrepreneurs. These initiatives reflect a broader trend of adaptation in a competitive landscape.
As banks navigate these changes, they must balance the need for deposits with the demand for innovative solutions. The doubling of the TDS limit for senior citizens could stabilize deposits. Meanwhile, the Parivartan program could ignite a wave of social entrepreneurship.
In conclusion, the future of banking in India is being shaped by these initiatives. The Union Budget proposals and HDFC Bank's grants program are not just financial tools; they are catalysts for change. They signal a shift towards a more inclusive and innovative financial ecosystem. As the landscape evolves, banks must remain agile, embracing new opportunities while addressing the challenges ahead. The road may be winding, but the destination is clear: a more resilient and dynamic banking sector.
The Union Budget proposal to double the tax deduction at source (TDS) limit for senior citizens is a game-changer. It raises the limit from ₹40,000 to ₹1 lakh. This move is designed to encourage senior citizens to keep their money in banks. With banks struggling to mobilize deposits, this proposal could be a lifeline. Senior citizens are a reliable source of deposits. They prefer stability over risk. The new TDS limit allows them to invest more without incurring tax penalties.
Currently, the TDS rate is 10% for those with a Permanent Account Number (PAN) and 20% for those without. With an 8% return, senior citizens can now invest up to ₹12 lakh in a single bank without attracting TDS. Previously, this limit was only ₹6 lakh. This change could lead to a significant increase in bank deposits.
For others, the new limit allows investments of up to ₹6.5 lakh without TDS, assuming a 7.5% interest rate. This flexibility is crucial in a market where alternative investment avenues offer higher returns. The banking sector has seen a decline in deposit growth, with figures dropping from 12.6% a year ago to 10.2% as of December 2024.
The weighted average domestic term deposit rates (WADTDRs) have also seen a rise. Between May 2022 and November 2024, WADTDRs on fresh deposits increased by 243 basis points. This rise reflects the banks' need to attract more deposits amid stiff competition.
However, the cost of funds for scheduled commercial banks has increased slightly. The Economic Survey for 2024-25 indicates that while lending rates have adjusted faster than deposit rates, the overall yield on assets has remained stable. This has led to a marginal decline in net interest margins across all bank groups.
In this context, HDFC Bank's announcement of its eighth edition of the 'Parivartan Start-up Grants' program is noteworthy. This initiative aims to support social impact startups with grants of up to ₹50 lakh. The total budget for the program is ₹20 crore.
HDFC Bank has partnered with over 15 incubators and accelerators to support nearly 60 startups. These startups focus on various sectors, including AI for social good, climate innovation, and financial inclusion. The program culminates in 'Demo Day' events, where startups showcase their innovations to investors and the media.
This initiative is more than just financial support. It represents a commitment to sustainable development and the UN's Sustainable Development Goals (SDGs). By nurturing social startups, HDFC Bank aims to address critical societal needs. The selected startups will come from diverse regions across India, including Maharashtra, Karnataka, and Uttar Pradesh.
The Parivartan Start-up Grants program has already supported over 400 startups since its inception in 2017. This track record highlights HDFC Bank's dedication to fostering innovation and building a robust startup ecosystem.
The banking sector is at a crossroads. On one hand, traditional deposit mobilization faces challenges. On the other, innovative programs like HDFC's grants are paving the way for a new generation of entrepreneurs. These initiatives reflect a broader trend of adaptation in a competitive landscape.
As banks navigate these changes, they must balance the need for deposits with the demand for innovative solutions. The doubling of the TDS limit for senior citizens could stabilize deposits. Meanwhile, the Parivartan program could ignite a wave of social entrepreneurship.
In conclusion, the future of banking in India is being shaped by these initiatives. The Union Budget proposals and HDFC Bank's grants program are not just financial tools; they are catalysts for change. They signal a shift towards a more inclusive and innovative financial ecosystem. As the landscape evolves, banks must remain agile, embracing new opportunities while addressing the challenges ahead. The road may be winding, but the destination is clear: a more resilient and dynamic banking sector.