Budget 2026 Expectations: Why Banks, Fintech And Borrowers Want Clearer Rules For Digital Lending, Credit Access

With the Union Budget 2026 fast approaching, banking and financial services sector players are pressing for more defined policies regarding digital lending, consumer protection, and system-level safeguards. Credit growth is robust, but increasing leverage, tighter liquidity, and the fintech explosion have brought the need for regulation and budget transparency into sharper focus.

The non-food bank credit has been increasing at a rate of 11-12 per cent on a year-on-year basis, led by personal loans and MSME loans. However, the credit-to-deposit ratio of the banking system has surpassed the 80 per cent mark, indicating that the funding conditions have become tighter. Against this backdrop, industry experts say that the budget 2026 must focus on strengthening the foundations of credit growth rather than pushing volumes alone.

Emphasis on Capability and Risk Management

At the system level, there are concerns that the capability in the financial sector has not kept pace with growth and expansion. Vivek Iyer, partner and financial services risk leader at Grant Thornton Bharat, said the budget should address this gap. "The Budget for FY26 must help the financial system evolve from a growth-centred model to a capability-centred one", he said.

He also stated India requires “...clarity on AI governance, stronger liquidity buffers, deeper market infrastructure, cutting-edge cybersecurity and a clear long-term direction for green and global capital flows”.

"This is the moment to build a financial sector that is not only expanding but is also intelligent, interoperable and globally benchmarked," Iyer added.

These problems have become more pressing as digital lending platforms and real-time credit products become more closely integrated with the formal banking system.

Home Loans and Borrower Disclosures

Household credit stress continues to be a major concern in the run-up to the budget. The home loan outstanding has breached the Rs 40 lakh crore mark, reaching about Rs 41-42 lakh crore, and housing loans are now the single largest retail credit business. The equated monthly instalments (EMIs) account for a rising share of monthly household expenditure, especially for the salaried class.

Vikas Tarachandani, co-founder of SURE, said that the upcoming budget should incorporate some support required to ease the pressure on borrowers.

“For most Indian households, the home loan is the biggest monthly outflow, and we hope the Budget strengthens home-loan tax benefits to support long-term affordability,” said Tarachandani.

He also pointed out the existing transparency gaps. “There is a clear need for simpler, borrower-friendly disclosures from lenders-how the interest rate is calculated, what can change over time and when changes are passed on.”

The tax limits on the principal and interest payments on home loans have been the same for years, even though the prices of properties and the amounts borrowed have increased.

Digital Lending Rules and Consumer Protection

Lending through fintech has increased credit access, especially for first-time borrowers, but regulatory consistency is a worry. Smaller ticket loans are more common, and rates and terms differ greatly.

Rohit Garg, founder and CEO of Olyv, said that the budget 2026 should focus on trust. He said, “As India’s credit ecosystem evolves, the focus in this Budget should be on deepening trust, transparency, and access within the formal lending system.”

He further added, “Clear and consistent policy frameworks for digital lending, stronger data infrastructure, and continued emphasis on financial literacy can go a long way in ensuring credit reaches the borrowers responsibly”.

Cybersecurity and Alternative Credit Assessment

With lending and payments rapidly going digital, the challenge of cybersecurity has become a system-wide issue. Ravindra Rai, managing director and CEO at BOBCARD, said budget allocations should take into account the trend. “Continued emphasis on digital payments, cybersecurity, and financial infrastructure would go a long way in strengthening trust across the ecosystem.”

He also highlighted the role of data in widening access. “Policy support for alternative credit assessment models can meaningfully expand access to formal credit,” Rai said, pointing to transaction and cash-flow data as tools to bring underserved borrowers into the system.

Credit Growth and Stability

Experts expect the Union Budget 2026 to strike a balance between affordability and financial stability. According to Prashant Mishra, founder and CEO of Agnam Advisors, streamlined and clearer regulatory norms, if introduced in the budget, "would reduce compliance burdens and make investment products more transparent and attractive for long-term retail participation."

Mishra also stated, “Enhanced priority sector lending targets and simplified KYC norms for MSMEs and retail borrowers could unlock credit growth to 15–16 per cent YoY”.

As budget 2026 approaches, expectations from the sector are clear. Strong credit demand needs to be matched with clearer rules, better disclosures and stronger safeguards, with the Reserve Bank of India (RBI) expected to remain central to shaping outcomes under the Union Budget 2026.