Banks, NBFCs eye Budget 2026 relief on credit flow, taxes and compliance

BFSI leaders have flagged concerns around funding access, uneven regulatory treatment

• NBFCs seek refinancing support and regulatory parity with banks in Budget 2026
• Industry urges tax reforms for capital markets and relief on TDS compliance
• Digital payments firms request clarity on subsidy structures to sustain growth

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India’s banking and financial services sector enters the Union Budget 2026 at a critical juncture. While balance sheets across banks have strengthened and credit growth remains healthy, segments such as non-banking financial companies (NBFCs), capital markets and digital payments are seeking targeted policy support to sustain momentum and address structural bottlenecks.

During pre-Budget consultations with Finance Minister Nirmala Sitharaman, BFSI leaders flagged concerns around funding access, uneven regulatory treatment, taxation challenges and the need to boost household participation in financial markets.

Big Trends

Credit expansion with stress pockets: While bank-led credit growth remains robust, NBFCs continue to face refinancing constraints amid tighter liquidity conditions.

Push to deepen equity participation: Capital-market participants are seeking policy nudges to raise household equity exposure from about 5% to 8%.

Digital payments and fintech scale-up: UPI-led transactions continue to surge, with payment firms seeking clarity on subsidy structures to sustain growth.

Major Issues/ Challenges

Funding constraints for NBFCs: Lack of a dedicated refinancing window limits the sector’s ability to support MSMEs and retail borrowers.

Regulatory asymmetry: Higher SARFAESI thresholds and TDS-related compliance burdens for NBFCs compared with banks create an uneven operating framework.

Tax inefficiencies in capital markets: Stakeholders point to distortions in STT, buyback taxation and dividend taxation that discourage long-term investing.

What Happened in the Last Budget

1. FDI limit in the insurance sector raised from 74 percent to 100 percent
2. Simplification of KYC norms and rollout of revamped Central KYC Registry
3. ULIP taxation rationalised; non-exempt ULIPs taxed as capital assets
4. Capital gains framework clarified for Category I and II AIFs
5. Tax exemption deadline for sovereign wealth and pension funds extended to March 2030
6. Rationalisation of withholding tax provisions and relaxation in TCS on foreign remittances

What the Industry Expects from Budget 2026

Refinancing support for NBFCs: Industry leaders have sought a refinancing window for NBFCs to ensure smoother credit flow, particularly to MSMEs, according to people familiar with the discussions.

Regulatory parity with banks: NBFCs have urged the government to lower the SARFAESI threshold to Rs 1 lakh—on par with banks—from the current Rs 20 lakh, arguing that the existing rule distorts competition.

TDS and compliance relief: NBFCs are seeking exemption from TDS on loan repayments made to them, citing increased compliance costs and cash-flow strain.

Capital-market tax rationalisation: Market participants have proposed keeping STT on cash equity trades lower than derivatives to promote long-term investing over speculation.

Buyback and dividend tax reforms: Stakeholders have recommended taxing only the profit portion of share buybacks and aligning dividend tax rates for domestic investors with those applicable to NRIs.