Budget 2026: MSME Credit Push and Tax Relief Key for Bandhan Bank

Budget 2026 Offers Potential Tailwinds for Bandhan Bank

As Union Budget 2026 approaches, the banking sector is closely watching for policy signals that could shape its trajectory. For Bandhan Bank, which is navigating a strategic shift towards a more secured portfolio while managing stress in its core microfinance (Emerging Entrepreneurs Business - EEB) segment, the budget's focus on financial inclusion and MSME support could be particularly significant. Key expectations revolve around enhanced credit guarantees, tax relief on provisions, and a continued push for digital infrastructure, all of which align with the bank's current operational priorities.

De-Risking the Core: Enhanced MSME Credit Support

The most direct and impactful expectation for Bandhan Bank from Union Budget 2026 is the potential enhancement of credit guarantee mechanisms for Micro, Small, and Medium Enterprises (MSMEs). Industry stakeholders have called for schemes with higher coverage, longer tenors, and simplified norms. Such measures would directly lower the credit risk associated with lending to the unorganized and semi-formal sectors, which form the bedrock of Bandhan Bank's EEB portfolio.

Given the bank's recent challenges with elevated slippages in this segment, a government-backed risk-sharing framework or co-lending scheme would provide a crucial buffer. It would enable the bank to continue lending to its core customer base with greater confidence, supporting credit growth without taking on disproportionate risk. This aligns with the government's broader objective of ensuring adequate credit flow to this vital, employment-generating sector.

A Boost for the Bottom Line: Tax Relief on NPA Provisions

Another critical demand from the banking industry is an increase in the income tax deduction limit for provisions made against Non-Performing Assets (NPAs). The current cap of 8.5 percent is seen as insufficient, especially for lenders managing asset quality cycles. An upward revision would provide direct financial relief to banks like Bandhan, which have been making substantial provisions to strengthen their balance sheets.

For Bandhan Bank, higher tax deductibility on provisions would translate into a lower tax outgo, thereby boosting its net profit and improving its return on assets (ROA) and return on equity (ROE). This conserved capital could then be deployed for further lending, technology upgrades, or to absorb future shocks, strengthening the bank's overall financial resilience.

Digital Infrastructure and Financial Inclusion

The budget is expected to continue its support for digital financial infrastructure, including platforms like UPI and other digital lending ecosystems. This focus benefits Bandhan Bank's strategy of leveraging technology to improve efficiency and expand its reach in semi-urban and rural areas. As the bank works to digitize its operations, from loan origination to collections, government investment in public digital infrastructure reduces costs and enhances service delivery.

Furthermore, the call for a dedicated 'FinTech Bill' to clarify regulatory sandboxes could pave the way for more structured and scalable partnerships between banks and fintech companies. This would allow Bandhan to collaborate more effectively on innovative solutions for credit assessment and last-mile service delivery.

Summary of Key Budget 2026 Expectations for Bandhan Bank

Broader Financial Stability and Regulatory Environment

Proposals such as a special liquidity window for Non-Banking Financial Companies (NBFCs) and regulatory easing for regional rural banks and small finance banks signal the government's intent to maintain stability across the financial spectrum. While not directly applicable to Bandhan as a universal bank, these measures create a healthier and more resilient financial ecosystem. A stable environment reduces contagion risk and ensures that liquidity remains adequate in the system, which is beneficial for all participants.

Outlook and Analysis

The expectations from Union Budget 2026 are well-aligned with Bandhan Bank's strategic needs. The bank has been proactively cleaning its balance sheet through NPA sales to ARCs and is focused on improving its asset mix by growing its secured loan book. Policy support that de-risks its legacy microfinance business and provides fiscal relief on provisioning costs would act as a powerful catalyst for its recovery.

If these proposals are implemented, Bandhan Bank would be better positioned to accelerate credit growth, improve profitability, and achieve its medium-term goal of reducing credit costs. The budget could provide the necessary policy tailwinds to support the bank's transition towards a more balanced and resilient business model.

Conclusion

For Bandhan Bank, Union Budget 2026 holds the potential to be a pivotal event. The focus on strengthening the MSME credit ecosystem and addressing the financial burden of NPA provisions could directly support its ongoing turnaround efforts. Investors and stakeholders will be watching closely to see if the final budget delivers on these expectations, which could significantly influence the bank's performance in the upcoming fiscal year.