Banking Sector Enters Budget Season with Stronger Balance Sheets and Focus on Credit Growth

The banking sector heads into the Union Budget on February 1 with significantly improved fundamentals compared to previous years. In the Union Budget for FY2025–26, the government allocated ₹1.48 lakh crore towards financial sector initiatives, including capital support, financial inclusion programs, and regulatory strengthening.

Public sector banks, which once required repeated capital infusion, have seen a marked improvement in asset quality. Gross non-performing assets (GNPA) of scheduled commercial banks declined to around 3.2%, compared to over 11% at their peak a few years ago. Credit growth has also remained healthy, averaging 15–16% year-on-year, supporting economic activity across retail, MSME, and corporate segments.

Expectation: Given the improved financial health of banks, market participants expect the upcoming budget to focus on maintaining policy stability rather than announcing large-scale bank recapitalisation. The emphasis is likely to remain on sustaining credit flow to productive sectors such as infrastructure, MSMEs, housing, and manufacturing.

Economic Context: Banks play a central role in transmitting monetary policy and financing economic growth. Stronger balance sheets have enabled banks to lend without excessive reliance on government capital support, improving overall financial system resilience.

Prediction: The budget may reinforce ongoing reforms related to governance, digital banking infrastructure, and financial inclusion, while avoiding disruptive regulatory changes. Any capital support announcements, if made, are expected to be targeted rather than broad-based.

National Outlook and Hope: A stable and well-capitalised banking system is viewed as essential for sustaining India’s growth momentum. Continued improvement in asset quality and credit availability could strengthen investor confidence, support consumption, and ensure long-term financial stability for the economy.