Budget 2026 and BFSI: How new measures will impact banks, NBFCs and digital payments

India’s Budget 2026 carries mixed implications for the banking, financial services and insurance (BFSI) sector, with higher government borrowing pressuring bond yields even as targeted measures support payments, MSME credit and infrastructure financing.

CNBC-TV18 breaks down each announcements the Finance Minister made on BFSI sector and their impact.

• Higher market borrowings announced in the Budget are likely to keep government bond yields elevated, a negative for banks’ treasury portfolios. Public sector banks (PSBs), which typically hold a larger share of government securities, could see mark-to-market pressures, while elevated yields may also raise borrowing costs for non-bank finance companies (NBFCs).


• On the digital payments front, the government sharply increased allocations for UPI incentives, pegging them at ₹2,000 crore for FY27 (BE) and revising FY26 allocations to ₹2,196 crore, from just ₹437 crore budgeted earlier. The move is positive for payment players such as Paytm and Mobikwik, supporting transaction-led revenue models.


• The Budget also proposed setting up a “High-Level Committee on Banking for Viksit Bharat” to comprehensively review the sector’s readiness for the next phase of growth. While details are awaited, the exercise could open the door to structural reforms, including another round of consolidation among public sector banks.


• In a move closely watched by lenders, the government proposed restructuring the Power Finance Corporation (PFC) and Rural Electrification Corporation (REC). While specifics were not disclosed, the proposal could involve a merger of the two entities, potentially removing the holding company discount and turning sentiment positive for both stocks.


• To ease funding for large infrastructure projects, the government announced the creation of an Infrastructure Risk Guarantee Fund, which will offer partial credit guarantees during the construction phase. The mechanism is expected to improve bank appetite for long-gestation projects, particularly for PSBs with higher infrastructure exposure.


• The Budget also focused on MSME financing, mandating the use of the Trade Receivables Discounting System (TReDS) for CPSE procurements, expanding CGTMSE-backed credit guarantees, linking the Government e-Marketplace (GeM) with TReDS, and enabling securitisation of TReDS receivables. These steps aim to lower financing costs, improve liquidity and speed up settlements for small businesses.


• Additionally, the government announced a ₹10,000 crore SME Growth Fund to provide equity support to enterprises. The move is seen as positive for SME-focused lenders such as Karur Vysya Bank, City Union Bank and Federal Bank, as well as NBFCs including Cholamandalam Investment and Bajaj Finance.


• Finally, the government’s push towards deepening bond markets could incrementally weigh on banks over the medium term, as corporate borrowers continue to shift away from traditional bank credit towards market-based financing.