Union Budget 2026-27: Banking Panel, PFC-REC Restructuring, Bond Liquidity Measures

Budget 2026-27 flags a banking review panel, a public-sector NBFC restructuring plan, and bond-market liquidity reforms, with foreign ownership rules also under review.

Finance Minister Nirmala Sitharaman used the Union Budget 2026-27 speech to position India’s financial system as healthier than before and ready for the next reform leg. The official government note highlights strong balance sheets, historic highs in profitability, improved asset quality, and banking coverage that has crossed 98% of villages.

Against this backdrop, the Budget signals 3 linked moves: a high-level banking committee, a roadmap-led reset for NBFCs, and reforms aimed at making corporate and municipal bond markets deeper and easier to trade.

What Is Driving The New Banking Push?
 

Read More - Bond Valuation

The immediate issue is not a crisis headline. It is about capacity and structure. The Budget proposes a “High Level Committee on Banking for Viksit Bharat” to comprehensively review the sector and align it with India’s next growth phase, while safeguarding financial stability, inclusion and consumer protection. 

In the background, there is also policy chatter on how public sector banks fund growth, including whether foreign capital rules need recalibration.

The Core Announcements And What They Change

First, the proposed banking committee is expected to examine how lenders should evolve for a “Viksit Bharat” roadmap. The government framing is clear: review the system comprehensively, without diluting stability and consumer safeguards.

Second, the Budget outlines a vision for NBFCs with “clear targets” for credit disbursement and technology adoption.

Third, it proposes restructuring Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) as a first step to achieve scale and efficiency in public sector NBFCs. Markets reacted fast: reports noted PFC and REC rising about 4% to 6% after the proposal.
 

The capital markets leg is the other pillar. The Budget proposes a market-making framework for corporate bonds with access to funds, derivatives on corporate bond indices, and total return swaps (TRS) on corporate bonds.

It also offers a ₹100 crore incentive for a single municipal bond issuance above ₹1,000 crore.

What Led Up To This Moment?

In the days around the Budget presentation, multiple reports linked the committee to a wider debate on banking structure. The Economic Times reported that the panel’s work could touch on bank ownership and consolidation, a theme that returns whenever policymakers talk about building fewer but stronger lenders.

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Separately, foreign investment limits in state-run banks have re-entered the policy conversation. Reuters reported on February 2, 2026 that inter-ministerial consultations are on to raise the FDI cap in state-run banks to 49% from 20%, citing Financial Services Secretary M. Nagaraju. Financial Times carried a similar theme, and noted private banks allow foreign investment up to 74% subject to conditions.

On NBFCs, sector-specific asks were visible even before Budget day. A LoansJagat