Banking Sector Presents Key Demands Ahead of Union Budget 2026
The Union Budget 2026 season is officially underway, and India's banking and financial services sector is stepping forward with a comprehensive list of expectations. Industry stakeholders are actively seeking targeted policy interventions to address pressing challenges, including credit constraints, employment pressures, and evolving regulatory hurdles.
Current Landscape: Growth Amidst Concerns
According to Balasubramanian A, Senior Vice President at TeamLease Services, the Banking, Financial Services, and Insurance (BFSI) sector played a significant role in expanding formal employment throughout 2025. This growth was largely propelled by the aggressive hiring strategies of major banks and the rapid expansion of fintech platforms. Lending growth during the year remained steady, hovering in the mid-to-high single digits.
However, the expert also highlighted emerging concerns regarding asset quality. There is a noticeable rise in non-performing assets (NPAs), particularly within unsecured personal loan portfolios and auto loan segments. This troubling trend is seen as a direct reflection of weaker overall economic growth and the lingering impact of earlier interest rate hikes implemented by the Reserve Bank of India.
Employment Dynamics and Credit Challenges
Hiring within the sector has been predominantly concentrated in customer-facing roles, such as retail banking, alongside back-office operations and compliance functions. High-skill positions in investment banking and wealth management remain limited in availability. While employment is formally structured, wage growth has consistently lagged behind inflation, leading to compressed real wages for junior-level staff across the industry.
Credit availability continues to be a paramount challenge. Despite the existence of various government schemes, Micro, Small, and Medium Enterprises (MSMEs) remain largely credit-starved. SME lending is growing at a disappointingly slow pace. On a positive note, housing finance has demonstrated resilience, and insurance penetration is gradually increasing in semi-urban and rural areas. Nevertheless, these isolated positives are overshadowed by a broader sense of caution influencing bank lending decisions across the board.
Key Expectations from Union Budget 2026
The sector is looking to the upcoming Union Budget for decisive support. Key demands include:
- Enhanced Credit Guarantee for MSMEs: The industry is advocating for improved credit guarantee mechanisms with higher coverage limits, longer tenors, and significantly simplified KYC (Know Your Customer) norms for small-ticket loans.
- Co-Lending Schemes: To improve credit access for MSMEs, there is a strong push for the deployment of co-lending schemes where the government actively shares the associated risks with financial institutions.
- Digital Financial Inclusion: The sector seeks continued and amplified support for digital financial inclusion. This includes backing for flagship platforms like UPI and BHIM, support for digital lending platforms, and the introduction of a comprehensive "FinTech Bill" to clarify regulatory sandboxes and provide a stable framework for innovation.
- Pension and Insurance Incentives: Incentives to boost pension and insurance adoption are a major priority. There are calls for matching government contributions for National Pension System (NPS) enrolments to strengthen the nation's savings base and enhance retirement security.
- Regulatory Relief for Smaller Banks: The industry is requesting specific regulatory relief for Regional Rural Banks (RRBs) and Small Finance Banks (SFBs). Proposed measures include targeted tax breaks and a reduced compliance burden to improve their profitability and, crucially, to expand the flow of credit to underserved rural areas.
As the budget formulation process gains momentum, the banking sector's wishlist underscores a critical need for balanced policies that foster growth, manage risk, and ensure financial stability for India's evolving economy.
