Union Budget 2026: FM announces panel to review banking sector, move aimed at strengthening banking system

The announcement, however, also comes as banks find it difficult to raise deposits. On Saturday, State Bank of India (SBI) Chairman C S Setty had called for tax parity between bank deposits and equity investments, saying that higher taxes on the former were making fund mobilisation difficult for banks as people put more and more of their savings in the stock market.

In September last year, the finance ministry’s Department of Financial Services had organised a two-day programme called ‘PSB Manthan’. There, the government deliberated strategies to transform PSBs into globally competitive institutions. The government also wants that at least one or two state-run banks rank in the top-20 of the world by 2047.

Currently, SBI is the 43rd biggest bank in the world in terms of asset size — the only public sector bank in the top 100.

Commenting on the development, Vivek Iyer, Partner and Financial Services Risk Leader, Grant Thornton Bharat, said that with a strong focus on financial stability, inclusion, and consumer protection, the banking sector’s priorities need to be re‑examined to support economic growth and achieve the vision of Viksit Bharat.

“The proposed reforms will span commercial and co‑operative banks alike, and the establishment of a high‑level committee on banking will help drive this agenda. Overall, this is a significant credit‑positive development for the banking sector,” he said.

Restructuring of REC and PFC

Sitharaman said that the vision for non-banking financial corporation (NBFCs) for Viksit Bharat has been outlined by targets for credit disbursement and technology adoption.

“In order to achieve scale and improve efficiency in the public sector NBFCS, as first step, it is proposed to restructure the Power Finance Corporation (PFC) and Rural Electrification Corporation (REC),” Sitharaman said. Shares of REC and PFC rose 4.3% and 5.9% during the intraday trades, respectively.

Review of foreign exchange management rules

The Finance Minister announced a comprehensive review of the foreign exchange management (non-debt instruments) rules, to create a more contemporary user-friendly framework for foreign investments, consistent with India’s evolving economic priorities.

Corporate bond market

Sitharaman proposed to introduce a market making framework with suitable access to funds and derivatives on corporate bond indices. She also announced a Total Return Swap (TRS) on corporate bonds. A TRS is a financial derivative that enables one party to receive payments based on a set rate, while the other gains from the total return of a reference asset, such as an equity index, a basket of loans, or bonds

Municipal bonds

To encourage the issuance of municipal bonds of higher value by larger cities, Sitharaman proposed an incentive of Rs 100 crore for a single-bond issuance of size more than Rs 1,000 crore.

The current scheme under Atal Mission for Rejuvenation and Urban Transformation (AMRUT), which incentivises issuances up to Rs 200 crore only, will also continue to support smaller and medium towns.