Hello everyone,

Welcome to the 60th edition of The Pattern, a weekly newsletter where we unpack the rumblings from the worlds of finance, technology, and the economy. Let’s jump right in!

The government may be in the process of setting up a  panel  to draw up a list of Public Sector Banks (PSBs) that can be privatised. This comes after the Niti Aayog recommended the privatisation of two state-run banks in 2021.

The argument around whether or not public banks should be privatised is not new. Those who are  for the move  make compelling points. For instance, between 2014 and 2021, private banks have made a bigger contribution towards extending loans, and a higher percentage of deposits. They also added more branches and created more jobs than their state-run counterparts. Overall, private banks seem to outperform PSBs in several aspects.

However, on the  flip side , one must not lose sight of why public banks exist in the first place - to serve those segments that are traditionally ignored by private players. For example, out of all the beneficiaries of the Pradhan Mantri Jan Dhan Yojana, private banks account for only a  miniscule percentage.

Most notably, according to RBI researchers,when profit maximisation is the sole motive, PVBs surpass PSBs. But if you look at their functioning with regard to financial inclusion - in terms of total branches, agricultural advances etc - PSBs prove much more efficient.

The government is now revisiting privatisation since state-owned lenders have turned profitable and several rounds of consolidation have reduced their number. 

To privatise or not to privatise seems to be a matter of perspective, and we’ll simply have to wait and see how it pans out if the government goes ahead.

In other news, the government recently  notified  the amended rules under the Foreign Exchange Management Act (FEMA), which has brought credit card spending outside India under the Liberalised Remittance Scheme (LRS). As a result, Credit card transactions by individuals abroad will be subject to the annual LRS limit of USD 2,50,000. Any higher spending would require prior approval from the RBI.

The move is expected to help track high-value transactions abroad, but what has stirred controversy is the decision to impose 20% Tax Collected at Source (TCS) on international credit card spends.

Tax payers will be able to claim the 20% when filing their returns, but up until then, they will see higher bills and potentially have their money blocked until a return is filed/refund is claimed, and tax already collected is adjusted. Banks too will now have to set up processes for compliance and can expect to experience some upheavals as Indians use their credit cards abroad.

Unsurprisingly, Twitter is ablaze with unsavoury opinions about the move - with many saying that  doesn’t account for the fact that it’s not just high networth individuals who travel abroad, the middle class do too. And it’s the latter that will face major cash flow difficulties on their travels.

I’m curious to see further clarifications on this rule - and  how it will impact spending patterns for Indians travelling abroad.

That’s all from me for now - see you next week! As always, I’m leaving you with some of my favourite reads of the week. Between the digits: - USD 150 Bn: The potential  valuation  Indian FinTechs could reach by 2025

 - 57%: The percentage of  frauds  in India linked to e-comm, social media, and FinTech platforms 

- USD 12 Bn: The amount India’s  defence production  has crossed in FY23 - INR 87,416 Cr:  The amount that the RBI has approved for transfer as  surplus  to the central government for 2022-23

Reading recommendations:

• Sebi's proposed fee caps could slash AMC profits by Rs 1,400 crore

• Privatization of Public Sector Banks in India Why, How and How Far?

• NPCI’s 1.1% interchange fee on UPI payments via wallet – The watershed moment for Fintech in India

• CSR vs. ESG: Will RBI’s green push lead to a trade-off with health and education?

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on Twitter  here  and follow  FinBox on LinkedIn  to never miss any updates.  

Cheers, 

Mayank

All opinions expressed are my own and do not necessarily reflect the views of FinBox or its promoters.