Bajaj Finance & Budget 2026: MSME Push to Lower Credit Costs?

A Budget Focused on Growth and MSME Empowerment

Union Budget 2026, presented by the Finance Minister, lays out a clear roadmap focused on sustained economic growth, fiscal discipline, and targeted support for critical sectors. For Bajaj Finance, a leading non-banking financial company (NBFC), the budget's strong emphasis on empowering Micro, Small, and Medium Enterprises (MSMEs) and deepening the financial markets presents a significant positive catalyst. While the company has been navigating challenges related to elevated credit costs and slower growth in its SME portfolio, the new policy measures could provide a much-needed tailwind, improving asset quality and opening new avenues for growth.

Direct Boost for the MSME Lending Portfolio

The most direct and impactful announcement for Bajaj Finance is the government's three-pronged approach to creating 'champion MSMEs'. The proposal to introduce a dedicated ₹10,000 crore SME growth fund is a major step. This fund is expected to provide equity support to promising enterprises, strengthening their balance sheets and making them more creditworthy. For Bajaj Finance, which has a substantial MSME loan book, this could lead to a healthier portfolio and reduced credit risk. The company had previously indicated stress in this segment and had taken steps to prune its unsecured MSME volumes. The government's initiative could help de-risk the sector and encourage prudent lending.

Furthermore, the budget's focus on liquidity support through the TReDS platform is crucial. Mandating TReDS for all purchases from MSMEs by Central Public Sector Enterprises (CPSEs) and introducing a credit guarantee mechanism for invoice discounting will significantly improve the cash flow cycle for small businesses. This directly addresses a primary cause of defaults, potentially lowering loan losses for lenders like Bajaj Finance.

Deepening Capital Markets to Lower Funding Costs

Bajaj Finance consistently taps the market to raise funds through instruments like Non-Convertible Debentures (NCDs). The Union Budget 2026 proposes several measures to deepen the corporate bond market, including a market-making framework and the introduction of total return swaps. A more liquid and robust bond market can translate into a lower cost of funds for high-rated issuers like Bajaj Finance. This is particularly relevant given the management's focus on managing its cost of funds, which stood at 7.79% in a recent quarter. A potential 10-15 basis point reduction in borrowing costs due to these reforms could directly bolster the company's Net Interest Margins (NIMs).

The Ripple Effect of a Capex-Led Push

The government's commitment to infrastructure development continues with a proposed increase in capital expenditure to ₹12.2 lakh crore. While this does not impact Bajaj Finance directly, the indirect effects are powerful. A sustained capex push fuels broad-based economic activity, creates employment, and increases disposable incomes. This, in turn, drives demand for consumer goods, vehicles, and housing, which are the core segments for Bajaj Finance's retail lending portfolio. The growth in new loans booked by the company is closely linked to the overall economic momentum, which the budget aims to accelerate.

Key Budget 2026 Announcements for Bajaj Finance

Aligning with Urban and Rural Expansion

The budget's focus on developing infrastructure in Tier 2 and Tier 3 cities aligns perfectly with Bajaj Finance's extensive distribution network. The company has a significant presence in both urban and rural India, and government support for these emerging growth centers validates its expansion strategy. As economic activity in these regions picks up, Bajaj Finance is well-positioned to capture the rising demand for financial services.

Regulatory Outlook and Investor Sentiment

The proposal to set up a high-level committee to review the banking and NBFC sector for 'Vikasit Bharat' signals a forward-looking approach to regulation. While this may lead to future policy changes, the immediate pro-growth and pro-MSME stance of the budget is likely to be viewed positively by investors. The measures announced should enhance the operating environment for well-managed NBFCs, reinforcing confidence in their long-term growth story.

Conclusion: A Supportive Policy Backdrop for Growth

Union Budget 2026 provides a favorable policy environment for Bajaj Finance. The direct support for the MSME sector addresses a key area of concern, the capital market reforms offer a path to lower funding costs, and the macroeconomic push from sustained capex spending creates strong demand-side tailwinds. While the company must continue to manage its internal asset quality and operational metrics diligently, the budget provides a supportive framework that can help mitigate risks and capitalize on growth opportunities in the coming fiscal year.