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The focus is not on simply expanding credit, but on redesigning the pathways through which capital flows and the way risk is allocated across institutions. In doing so, the Budget elevates finance from a supporting role to a strategic lever for orchestrating sustainable and resilient growth, aligning all components of the financial system to work cohesively toward long-term development objectives.
This approach reflects the lessons of earlier growth cycles, where rapid credit expansion without adequate risk sharing eventually weakened balance sheets, constrained capital, and slowed economic momentum. The current Budget responds by laying out an interconnected financial architecture that aligns banks, NBFCs, capital markets, and long-term investors within a single framework. Each announcement reinforces the same underlying principle. Growth must be financed in a way that preserves system resilience, while simultaneously embedding incentives for efficiency, scale, and specialised risk management.
The proposed Infrastructure Risk Guarantee Fund exemplifies this shift most clearly. While presented as a tool to support infrastructure development, its broader purpose is to correct a structural imbalance in India’s financial system. Historically, long-term projects have relied heavily on bank capital, which was neither structured nor priced to absorb the construction and execution risks associated with extended timelines. This concentration of risk on bank balance sheets has often created stress and limited the availability of long-term credit. Partial credit guarantees change this dynamic by reallocating risk to entities better positioned to manage it. Consequently, banks can provide long-tenor loans without tying up excessive capital, NBFCs can expand infrastructure financing without increasing balance-sheet volatility, and credit-enhanced assets become viable for bond market participation. As insurers and pension funds step in as long-duration investors, the cost of capital declines and project financing becomes more predictable. Thus, the infrastructure initiative also reshapes the flow of long-term finance, strengthens the system’s risk framework, and makes large-scale investment more stable and sustainable.
This reallocation of risk also explains the Budget’s approach to banking reform. The proposal to set up a High-Level Committee on Banking for Viksit Bharat signals a shift from a medium-term approach to financial reforms toward a more long-term strategy focused on capacity building. As the economy grows more complex and market-integrated, banks can no longer act as the sole repositories of risk. Instead, they are expected to operate as part of a broader financial ecosystem that includes guarantees, co-lending arrangements, securitisation, and capital markets. Policy stability and long-term clarity allow banks to plan capital deployment more strategically, focusing on structuring, partnerships, and efficient balance-sheet usage rather than pure credit expansion. The banking industry is moving beyond traditional transactions to become a strategic center that manages risk and capital across the financial system.
Within this evolving financial architecture, NBFCs are moving from the periphery to the core of India’s financial system. The restructuring of institutions such as PFC and REC underscores the critical importance of scale, governance, and operational efficiency in entities that anchor infrastructure and energy financing. More broadly, the Budget’s focus on securitisation, enhanced bond market liquidity, and risk-sharing mechanisms significantly strengthens NBFCs’ funding capabilities, reducing reliance on traditional bank credit and enabling more predictable, long-term financing. With improved access to market-linked capital and better alignment of loan durations with project timelines, NBFCs can deepen their presence in high-impact segments such as MSMEs, infrastructure, and emerging industries, where customised financing solutions and flexibility are key. This shift allows NBFCs to move beyond simply amplifying credit cycles. NBFCs are now positioned as specialised carriers of risk and are able to structure and distribute it across the financial ecosystem.
As risk is moved away from individual balance sheets, capital markets are taking on a more central role in financing the economy. Initiatives such as corporate bond market-making and the introduction of total return swaps help address long-standing liquidity challenges that have limited market depth. Stronger secondary market functioning changes behaviour across the financial system, as issuers gain confidence in accessing markets repeatedly, investors benefit from better price discovery and risk management, and banks can free up capital by distributing exposure instead of holding assets to maturity. Over time, these measures reduce concentration risks and enable long-term investment without stress.
The same logic underpins the Budget’s approach to MSME finance. Rather than pushing additional credit through traditional channels, the focus is on building a structured, market-linked ecosystem. Equity support through the SME Growth Fund, mandatory use of TReDS by CPSEs, credit guarantees for invoice discounting, and the securitisation of receivables together create a layered financing model. MSMEs gain faster access to working capital based on cash flows rather than collateral. Lenders benefit from transaction-level risk assessment and improved capital efficiency. Investors gain exposure to asset-backed instruments linked to real economic activity. Risk is shared across guarantors, lenders, and markets, reducing systemic vulnerability while expanding credit reach. 2026-2027 Budget demonstrates that shared risk can be engineered to drive inclusivity without compromising stability, a design principle that permeates other sectors as well.
This expansion of structured finance naturally extends to urban infrastructure. Incentives for municipal bond issuances signal an intent to deepen sub-sovereign debt markets and align financial flows with the growth of Tier II and Tier III cities. For financial institutions, this opens new avenues for underwriting, advisory services, and long-term investment, while reducing reliance on traditional government funding channels.
Underlying these structural shifts is a parallel effort to reduce friction within the system. The move toward a simplified Income Tax Act, rationalised penalties, and decriminalisation of minor defaults improves predictability and lowers operational risk across financial intermediation. For institutions managing complex portfolios and long-duration assets, regulatory stability becomes a form of financial infrastructure that supports long-term planning and capital allocation.
Taken together, the Budget does not treat financial services as a standalone sector, nor does it rely on isolated interventions. It constructs a coherent framework in which banks, NBFCs, markets, and institutional investors operate in alignment, each performing roles suited to their balance-sheet strengths and risk-bearing capacity. Growth is expected to emerge not from higher credit volumes alone, but from a system that allocates risk more intelligently and mobilises capital more efficiently. In doing so, the Budget positions financial services not as a constraint on India’s ambitions, but as the orchestrator of an economy-wide growth system.
This article first appeared in Businessworld on 3 February 2026.
