How did the budget make you feel?
Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, but why and how. We do this show in both formats: video and audio. This piece curates the stories that we talk about.
Check out the audio here:
And the video is here:
In today’s episode, we look at 3 big stories:
- Did the budget disappoint you?
- Microfinance—a problem in the making?
- Byjus juiced out
But before that, let me ask you a question about this newsletter. We are trying something different for today. So tell us, what do you think of this?
Did the budget disappoint you?
Let's dive into the biggest topic of the day—the budget! This year's budget had some fascinating changes that are worth discussing. We'll cover the highlights that might impact you and me the most.
First up, capital gains tax changes, which will affect traders and investors:
The short-term capital gains tax has increased from 15% to 20%.
The long-term capital gains tax has increased from 10% to 12.5%.
However, there's a bit of good news here—the exemption limit has been bumped up from ₹1 lakh to ₹1.25 lakhs, which might help offset some of the additional taxes the government will collect.
This rule took effect yesterday, so being a long-term investor might now seem a bit less attractive.
Also, the Securities Transaction Tax (STT) on options has increased from 0.062% to 0.1%, and on futures from 0.0125% to 0.02%. This change will kick in on October 1st, making trading a bit more expensive and potentially reducing volumes.
On a brighter note, customs duty on gold and silver has been reduced to 6%, and on platinum to 6.4%.
Now, let's talk about changes in income tax.
For those of you who have opted for the new tax regime, the tax slabs have been slightly revised this year:
Income up to ₹3 lakhs: 0%
₹3-7 lakhs: 5%
₹7-10 lakhs: 10%
₹10-12 lakhs: 15%
₹12-15 lakhs: 20%
Above ₹15 lakhs: 30%
The standard deduction has also been increased from ₹50,000 to ₹75,000. According to the finance minister, this should help an average Indian save as much as ₹17,500 on taxes every year.
Interestingly, there was no mention of the old regime in the budget speech, which suggests the government might be making the new tax regime more attractive to phase out the old one.
Moving on to jobs and employment:
The government announced one month's salary support for first-time employees. Freshers earning less than ₹1 lakh per month will receive a month's salary of up to ₹15,000 in their PF account.
Additionally, there's a new scheme to provide internships to 1 crore youths over the next 5 years, with interns receiving a monthly allowance of ₹5,000.
Next up, corporate taxation:
Great news for startups—the angel tax has finally been abolished! This means startups won't have to pay extra taxes when they receive funding from angel investors.
Corporate tax for foreign companies has also been reduced from 40% to 35%.
Lastly, let's talk about urban housing:
The finance minister announced a massive investment of ₹10 lakh crore in housing, aiming to help 1 crore urban poor and middle-class families. There's also a ₹2.2 lakh crore push to make housing more affordable across the country.
Microfinance—a problem in the making?
Moving on to the next story, let's dive into what's happening with microfinance. For those of you new to the podcast, here's a quick refresher on what microfinance is all about.
Microfinance companies, or MFIs, exist because India is a credit-starved country. As surprising as it may sound, the vast majority of Indians have no access to formal credit, like bank loans. So, microfinance companies were created to serve the needs of people in small towns and villages.
MFIs offer small loans and financial services to underserved, low-income individuals and small businesses, aiming to empower them and improve their economic situation.
Now, back to the news at hand. According to unconfirmed reports, the RBI has apparently asked these MFI lenders to slow down in Bihar and UP. But why? Well, microfinance loans in both of these states have been growing at a rapid pace, around 30-40%, which is the highest in India.
The RBI seems concerned about this rapid growth. That’s why the MicroFinance Institutions Network (MFIN), which oversees MFIs, has introduced some new rules:
A cap of ₹2 lakh on total borrowing per person.
A limit of 4 lenders per borrower.
These measures are intended to prevent people from borrowing too much and getting into financial trouble.
Additionally, IIFL recently published a report saying that bad loans in the microfinance sector are increasing slightly. States like Tamil Nadu, West Bengal, and Madhya Pradesh are seeing more overdue loans.
Coincidentally, RBL Bank released its quarterly results. Now, why am I talking about them? One of the biggest sources of revenue for RBL is microfinance. In their earnings call, they confirmed a slowdown in microfinance due to elections and a generally weak quarter. They even decided to reduce microfinance disbursements in Q1.
The CEO said, "In microfinance, we are focused on improving efficiencies in early buckets, and we want to see it get to the levels closer to last year."
Bad loans in their microfinance segment were around ₹135 crore for the quarter. The bank's CEO added, "The slippages in microfinance were higher versus Q4 of FY24, but we're still not close to where we were in the early parts of last year."
It's not just RBL. Even Kotak Mahindra Bank, which recently acquired a microfinance lender, is seeing some signs of stress in certain geographies and has slowed down lending there.
So far, these early signs of stress seem limited to microfinance and aren't a problem for the larger banking system. Let's hope it stays that way.
Byjus is out of juice
Moving on to the last story for the day, let’s talk about some new problems with Byju's—yes, once again.
Byju's, which was once India’s most valuable startup, is now facing serious trouble. This time, it could be the final nail in the coffin, potentially leading to the shutdown of the company.
Here's what's happening: Byju's has failed to pay a sponsorship fee of ₹158 crore to the Indian Cricket Board, BCCI. Let me explain.
In 2019, Byju's entered into a 3-year agreement with BCCI to sponsor the Indian cricket team's jersey. In 2022, Byju's renewed this contract for $55 million—which, according to the latest exchange rates, is about ₹460 crore!
But soon after that, Byju's started running into all sorts of trouble. So, they decided to terminate the sponsorship contract midway due to a shortage of funds.
Now, according to BCCI, Byju's still owes them ₹158 crore from that contract. And BCCI isn't the only one waiting for money. If reports are to be believed, many employees haven’t received their promised salaries either.
Because of all this, the NCLT, or the National Company Law Tribunal, has admitted Byju's to an insolvency process. I know that sounds complicated, so let me try and simplify it.
The NCLT has appointed a temporary professional to manage Byju's until a committee of creditors is set up. These creditors will then find ways to sell the company’s assets to clear all pending dues.
This means that founder Ravindra Byju no longer has control over the company.
But it doesn’t mean everything is officially over just yet. Ravindra Byju and the company's board of directors can still appeal this decision. In fact, they did try appealing in the Karnataka High Court, but their appeal was rejected. Their next option is the Supreme Court, but we’ll have to wait to see what happens there.
If Byju's appeal gets rejected again, there are only two options left:
The first is to reach an agreement with BCCI and resolve the matter mutually—which, honestly, seems a little unlikely at this moment.
If that fails, the second option is that the committee of creditors will have to liquidate Byju's assets to pay off its pending dues. With the amount of money Byju's owes, this would practically close down the company officially.
Only time will tell how this drama unfolds, but it’s really sad to see the poster boy of Indian startups go down this way.