Pitch Report: Banks look for capex push and tax incentives to drive deposit growth from Budget 2025

To encourage household deposits, some analysts have also suggested taxing interest income from deposits at a lower rate.

Banking sector will be looking for increased focus on capital expenditure and income-tax relief, to improve credit growth and deposit rates, from the Union Budget.

On February 1, the Union Minister Nirmala Sitharaman will announce the Union Budget 2025-26.

Credit growth
Analysts expect the government to maintain a strong focus on capital expenditure, particularly in roads, railways, and urban development, to spur investment opportunities and thus credit demand for banks.

"We anticipate this budget will continue to emphasise capex, which could act as a trigger to support corporate credit growth for banks," said analysts at Axis Securities, who have reiterated their positive stance on shares of SBI, Bank of Baroda, Canara Bank, HDFC Bank, and ICICI Bank.

Also read: Union Budget 2025: Focusing on 3Cs – Consolidation, Capex and Consumption

Retail credit and deposit
With the likelihood of the Budget nudging investors to the new income-tax regime, which has reduced exemptions, analysts hope that there will be friendlier tax slabs.

Vimal Nadar, Senior Director - Research at Colliers India, has said that an introduction of additional tax slab of 25 percent for income levels between Rs 15-20 lakh would provide significant tax relief and increase disposable income.

With more money in their hands, people are likely to consumer more and save more, serving the dual purpose of improving retail credit growth and deposit rates for banks.

To encourage household deposits, some analysts have also suggested taxing interest income from deposits at a lower rate.

Other areas of focus

Another sector that needs government support is the microfinance institutions (MFIs) and industry watchers are hoping that, in this budget, the government will set up a dedicated funding window to give MFIs access to affordable capital. Also, a government-backed credit guarantee scheme could be introduced to mitigate the risk associated with lending to microfinance borrowers, who often lack collateral, according to Axis Securities.

To give MIFs more freedom in extending loans, analysts suggest broadening the scope of eligible borrowers, increasing permissible size or repayment terms of loans.

Industry watchers have also commented on the slow pace of disinvestment this fiscal. Receipts have reached only Rs 8,630 crore as of January 2025, falling far short of the Rs 78,000 crore target for FY25BE. For FY26, experts expect the government to set a more realistic target of Rs 65,000–70,000 crore.