New Delhi | February 1, 2026
The Union Budget 2026–27 has sent a clear signal of continuity and confidence in India’s financial architecture, with a sharp focus on strengthening the banking system, expanding credit through NBFCs, deepening capital markets, and maintaining fiscal discipline amid global uncertainty. The Finance Minister’s proposals position the BFSI sector as a central pillar in achieving the government’s Viksit Bharat vision.
Banking Sector: Confidence Backed by Balance-Sheet Strength
The Finance Minister underlined the improved health of India’s banking system, citing provision coverage ratios above 98%, a key indicator of balance-sheet resilience. To prepare banks for the next phase of growth, the Budget announced the setting up of a high-level committee on banking reforms aligned with the Viksit Bharat roadmap.
The committee is expected to review governance, credit delivery, and long-term structural preparedness, signalling that the banking system is now seen as stable enough to support higher and more diversified credit growth.
NBFCs Get a Clear Role in India’s Credit Growth Story
A major highlight of the Budget was the articulation of a clearer and more strategic role for NBFCs in expanding credit access, especially for MSMEs, infrastructure, and underserved segments.
Key proposals include:
- Restructuring of public sector NBFCs
- Strengthening entities on the lines of PFC and REC
- Building larger, stronger and more efficient NBFCs
- Emphasis on technology-enabled and responsible credit expansion
These measures aim to improve institutional capacity, scale balance sheets, and enhance long-term lending capabilities beyond traditional banking channels.
Commenting on the move, Vishal Bhatia, CFO, FincFriends, said: “A more stable and clearly governed banking framework strengthens liquidity flow and partnerships between banks and NBFCs, enabling faster last-mile credit delivery and a more balanced credit ecosystem.”
MSMEs: Credit Access and Cash-Flow Relief in Focus
The Budget placed MSMEs firmly at the centre of its financial strategy, announcing a dedicated ₹10,000-crore MSME growth fund and a ₹2,000-crore top-up for the Self-Reliant India Fund to improve access to growth capital.
Equally significant were measures to strengthen the Trade Receivables Discounting System (TReDS):
- Mandatory TReDS onboarding for CPSE purchases
- Integration of GeM with TReDS
- Credit guarantees for invoice discounting
Ashok Mittal, MD & CEO, BillMart Fintech, said these steps directly address MSMEs’ working-capital constraints: “Long payment cycles of 60–90 days strain MSME cash flows. Strengthening TReDS and introducing credit guarantees will significantly improve liquidity visibility and give entrepreneurs the confidence to scale.”
Offering a broader policy and ecosystem perspective, Narasimhan V., Principal Advisor, and Dr. Sumita Kale, Principal Economist, Jocata, said: “ There are MSME-specific proposals like the ₹10,000-crore SME Growth Fund; mandating TReDS as the default settlement platform for all purchases from MSMEs by Central PSUs; integration of GeM with TReDS; and an additional corpus of ₹2,000 crore towards the Self-Reliant India Fund. In addition, there are many proposals for enhancing manufacturing, such as the revival of 200 legacy industrial clusters and one-time facilitation for SEZ units to sell in the Domestic Tariff Area at concessional duty rates. Trade facilitation moves like rationalising cargo clearance can give relief to working capital pressures that often plague small businesses. As these measures roll out over the year, we can expect a boost to growth and a firmer foundation towards resilient MSMEs.”
Capital Markets: Bond Market Depth and Investor Participation
The Union Budget 2026–27 introduced a set of measures aimed at strengthening India’s capital markets, with a particular focus on expanding the depth and participation in corporate and municipal bonds.
Key announcements include:
- ₹100 crore incentive for single bond issuances exceeding ₹1,000 crore, to encourage large, liquid issuances
- 5–10% allocation window for individual investors in bond investments, widening retail participation
- Continued policy support for municipal bonds under existing frameworks
To broaden equity market participation, the government also announced that foreign investors will be allowed direct equity investments.
On the taxation front, market reactions were mixed. The Finance Minister announced an increase in Securities Transaction Tax (STT) on futures to 0.05%, along with higher levies on options.
Fiscal Discipline and Capex-Led Growth
Fiscal prudence remained at the core of the government’s Budget strategy. The fiscal deficit for FY27 has been pegged at 4.3% of GDP, improving from 4.4% in the current fiscal, with the debt-to-GDP ratio projected to ease to 55.6%. This reflects the government’s intent to sustain macroeconomic stability while continuing with growth-enabling expenditure.
Complementing this discipline, capital expenditure has been increased to ₹12.2 lakh crore, registering a year-on-year rise of over 9%. The higher outlay is aimed at sustaining infrastructure momentum across transportation, urban development, and future-ready sectors critical for long-term economic expansion.
Sakshi Gupta, Principal Economist, HDFC Bank, noted: “The fiscal math appears prudent and credible, with a conservative nominal GDP assumption. However, higher-than-expected gross borrowing could keep bond yields under pressure in the near term.”
Taxation and Market Measures
Key relevant tax announcements include:
- Income Tax Act, 2025, to come into force from April 1
- Motor Accident Compensation is fully exempt from income tax
- Uniform 2% TCS under LRS for specified categories
- TDS’s responsibility for NRI property sales shifted to resident buyers
- STT on futures increased to 0.05%
- Dividend income from inter-cooperative societiesis allowed as a deduction
Ashwani Dhanawat, ED & CIO, Shriram General Insurance, said: “The exemption on motor accident compensation is a victim-friendly relief, while rationalising buyback taxation improves equity market fairness. The STT hike, however, could impact derivatives liquidity in the short term.”
The Union Budget 2026 blends fiscal prudence, institutional reform, and digital acceleration to shape the contours of India’s next growth phase. By reinforcing confidence in the financial system, expanding market access, and deepening credit flows through NBFCs and banks, the government has sought to lay a stable yet dynamic foundation for sustained economic momentum in the years ahead.
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