Why India’s Next Growth Phase Depends On NBFCs, Not Just Banks Post Budget 2026?

The evolution of India's credit system is no longer being measured by outreach alone. With formal banking now covering more than 98 per cent of villages and balance sheets showing historic resilience, the challenge has shifted to a more complex question: how to convert access into enduring economic value.

Short-term liquidity can unlock opportunity. However, long-term growth demands institutions capable of patient capital and disciplined risk-taking along with deep market integration.

Reflecting this new thinking, the Union Budget 2026-27 emphasises governance, market depth and institutional scale rather than blanket credit growth. Non-Banking Financial Companies (NBFCs), formerly viewed primarily as last-mile credit providers, stand at the forefront of this vision.

With reforms aimed at efficiency, technology adoption, and funding diversification, the budget repositions NBFCs as long-term enablers of MSME growth, infrastructure financing, and livelihood generation.

NBFCs and the Strength of Last-Mile Credit

NBFCs have consistently played a vital role in advancing financial inclusion in India by reaching borrowers beyond the traditional banking system. Serving rural, semi-urban and informal markets, they extend credit to first-time borrowers, micro-entrepreneurs, agricultural households, and small businesses that more often than not lack formal documentation or collateral.

"Their effectiveness originates from adaptability. Faster decisions, alternative credit assessments utilising cash flows and relationship-based lending assist NBFCs to operate where traditional underwriting falls short. Products like microfinance, gold loans, two-wheeler finance, affordable housing loans and commercial vehicle asset-backed lending foster livelihoods while gradually bringing borrowers into the formal financial system," said Mahesh Shukla, Founder & CEO of PayMe.

From Liquidity to Long-Term Value Creation

NBFCs do more than provide credit. By financing productive assets, including machinery, transport vehicles, equipment and housing, they aid borrowers in shifting from subsistence to income generation. First-time borrowers establish formal credit histories. This, in turn, simplifies their future access to finance and limits their reliance on informal lenders.

"Lending targeted at women entrepreneurs and rural enterprises strengthens the wider impact, translating financial inclusion into sustained economic participation. Here, NBFCs serve not only as lenders. Instead, they evolve into catalysts for formalisation and long-term value creation," stated Mahesh Shukla.

Budget 2026-27: Structural Reform Over Short-Term Stimulus

The Union Budget 2026-27 places a strong, well-capitalised banking system and a resilient NBFC sector at the centre of India's growth strategy. With banks posting record profits and improved asset quality, policy attention has changed significantly from balance-sheet repair to future readiness.

"One of the major highlights is the proposal to set up a High-Level Committee on Banking for Viksit Bharat. It will examine governance frameworks, reinforce consumer protection, and evaluate the sector's readiness for India's forthcoming economic expansion. Simultaneously, major public-sector NBFCs are set to be restructured to boost scale, operational efficiency and capital allocation," added Mahesh Shukla.

A clear roadmap for NBFCs accompanies these reforms. By encouraging higher credit disbursement and deeper technology adoption, the budget prefers long-term institutional resilience over short-term measures.

Strengthening Markets and Expanding Credit Reach

Sustainable credit growth depends on both strong funding channels and resilient borrowers. The Budget 2026-27 aims to deepen corporate bond markets through market-making frameworks, bond index derivatives, as well as broader investor participation, while incentivising large municipal bond issuances with Rs 100 crore for single issuances exceeding Rs 1,000 crore.

"In addition to reforms is a capital expenditure of Rs 12.2 lakh crore for FY 2026-27. It is significantly aimed at driving growth across infrastructure, logistics, manufacturing and urban development. Targeted support for MSMEs, via a Rs 10,000 crore growth fund and enhanced invoice discounting, is also predicted to ease 60-90 day cash-flow pressures, mitigate credit risk, and expand the pool of borrowers accessible to NBFCs," commented Mahesh Shukla.

Taken together, the budget's measures signal a move away from piecemeal credit growth towards institution-led and market-supported expansion. Borrowers can expect improved access, higher service quality, and more sustainable financing.

At the same time, the economy gains from stronger financial stability and the ability to support long-gestation investment. NBFCs are increasingly positioned as long-term partners rather than merely last-mile lenders, helping to create a more productive, inclusive, and resilient credit ecosystem.

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