Finance

On 1 February 2026, the Union Budget 2026-27 was presented in Parliament by the Union Minister Smt Nirmala Sitharaman. It laid out a deliberate roadmap for India's financial sector—one that builds on the remarkable strength of banks and NBFCs while preparing them for the next phase of growth under the Viksit Bharat vision. The Budget proposes setting up a High-Level Committee on “Banking for Viksit Bharat” to comprehensively review the financial sector and align it with India’s growth priorities, while safeguarding stability, inclusion, and consumer protection. The Budget note also states that the banking system is operating from a position of strength — strong balance sheets, improved asset quality, and “coverage exceeding 98% of villages.” This sets a strong foundation for forward-looking reforms. In this post, we will see what banks, NBFCs, and other financial institutions should know from the Union Budget 2026-27. What are The Key Highlights of The Union Budget 2026-27 For The Banking Sector? 1. Massive Infrastructure Push The Budget proposes ₹12.2 lakh crore in public capex for FY2026-27 and continues to anchor connectivity-led investment (including 7 high-speed rail corridors, a new East–West dedicated freight corridor, and waterways). How it helps (and what to watch) Expect stronger demand for long-tenor project finance, working capital for EPC supply chains, and credit across urban infra ecosystems. But this is not “easy infra credit.” The quality of lending will depend on how well lenders price execution risk and manage ALM (asset liability management) as project cycles stretch. 2. Infrastructure Risk Guarantee Fund The Budget proposes the creation of an Infrastructure Risk Guarantee Fund to provide “prudently calibrated” partial credit guarantees to lenders, specifically to improve confidence of private development during the development and construction-phase risk. How it helps: This can improve lenders’ willingness to fund projects where construction-stage uncertainty would otherwise force conservative exposure limits. If designed well, it can reduce the “all or nothing” nature of infra underwriting — allowing lenders to participate without loading the entire risk premium onto capital and provisioning. What banks/NBFCs should do now: Start mapping which infra segments and borrowers could qualify, and align internal credit notes early so you’re not reacting after the rules are operationalised. 3. NBFC Roadmap + Restructuring of PFC and REC The Budget proposes restructuring Power Finance Corporation and Rural Electrification Corporation to achieve scale and improve efficiency in public sector NBFCs. It also outlines a Viksit Bharat vision for NBFCs with targets for credit disbursement and technology adoption. How it helps: For NBFCs, this is policy clarity: growth expectations, tech expectations, and (likely) closer performance tracking. For banks, it’s a signal that NBFCs will remain central to credit expansion — which reinforces the importance of co-lending models, risk-sharing structures, and portfolio visibility across partners. 4. Capital market deepening + cross-border participation The Budget proposes measures such as a market-making framework, access to funds, derivatives on corporate bond indices, and instruments such as total return swaps on corporate bonds. It also proposes incentives to encourage larger municipal bond issuances (₹100 crore incentive for a single issuance above ₹1000 crore). Separately, it proposes a review of the Foreign Exchange Management (Non-debt Instruments) Rules and allows “Persons Resident Outside India” to invest in listed Indian equities via the Portfolio Investment Scheme with higher limits. How it helps: Banks get more room to diversify balance-sheet allocation (and build fee-led plays around issuances, swaps, and market participation). For NBFIs, deeper bond market liquidity can ease funding concentration and improve optionality (tenor + pricing), but only if investor demand and market-making execution actually scale. 5. Record dividend expectations from RBI and PSBs (₹3.16 lakh crore) The government has projected ₹3.16 lakh crore in dividends from the Reserve Bank of India and public sector banks for 2026-27. How it helps: It reinforces the Budget’s premise: the banking system is profitable and stable enough to support a growth-led agenda. It also implies higher expectations from stakeholders — for sustained profitability, governance discipline, and predictable capital planning. How Will The Union Budget 2026 Impact NBFCs and Lending Institutions? Markets responded with caution, particularly regarding public sector banks (PSBs), as the Budget did not outline immediate governance reforms or timelines for consolidation. Instead, it indicated a process involving a committee and review, rather than a quick policy package. Banking's structural issue persists, with deposit growth lagging credit growth, which continues to pressure margins amid liquidity tightening. The Budget does not directly encourage deposit mobilization, making it a strategic challenge for individual lenders rather than a solution provided by policy. Way Ahead for Banks, NBFCS, and Financial Organizations Get specific on infra credit Identify the infra-linked sectors where you can price risk well. Prepare internal playbooks for participating under the Risk Guarantee Fund once the eligibility mechanics are clear. Treat ALM and liabilities as a growth constraint If credit demand rises faster than stable funding, you’ll feel it in margins and risk appetite. Build retail liability programs, strengthen product mix, and plan funding diversity early. Track the High-Level Committee like a policy pipeline This committee is likely to shape sector structure and governance direction. Prepare for tighter expectations around risk management, inclusion outcomes, and consumer protection — because those words are explicitly baked into the committee’s mandate. Build capability for bond-market-linked balance sheet strategy The Budget’s bond market proposals are not cosmetic — they create room for lenders to use more market instruments over time. Treasury + risk teams should be aligned, not siloed. NBFCs: align tech adoption with underwriting, not just speed Targets around technology adoption are meaningful only if they improve portfolio quality and monitoring — not just disbursal velocity. Conclusion The truth is Union Budget 2026-27 doesn’t deliver dramatic overnight changes for banks and NBFCs. What it does is more operationally important: it establishes the mechanism (the committee), reinforces the growth engine (capex + infrastructure pipeline), and signals that the next phase will be defined by how efficiently and safely credit is delivered. For banks and NBFCs, the advantage will go to those who do three things early: build lending focus in priority sectors without loosening discipline, strengthen liabilities and ALM readiness, and prepare for governance/risk expectations that will likely rise as reforms progress. At LendMantra, we see this as a practical inflection point: institutions that pair policy-aligned credit expansion with strong underwriting, monitoring, and partner-led distribution will scale faster — without incurring slippage costs later. To understand how it can support you, especially in your loan origination and loan management process, get in touch with us for insights or a free demo. References Union Budget 2026: Transformative Strategies for Indian Banks, ETBFSI Press Release:Press Information Bureau Budget 2026: Sitharaman backs private developers with new Infrastructure Risk Guarantee Fund - The Economic Times Read More: https://lendmantra.com/blog/ Frequently Asked Questions:

Email

Location

Call Us Now

Email

Location

Call Us Now

Finance

Union Budget 2026: What Banks, NBFCs, and Financial Organizations Need to Kn…

Overcoming Regional Lending Barriers with an AI-Powered Loan System

Soluzione’s lendmantra Premieres at the 17th NBFCs & Fintech Concl…