As the Union Budget 2026 approaches, leaders across the NBFC and microfinance ecosystem are prioritizing liquidity support, stronger risk-sharing frameworks, and policy clarity to sustain credit flow to MSMEs, first-time borrowers, and underserved segments. Industry executives report that while demand for retail and small business credit remains resilient, lenders require structural support to manage funding costs, asset quality pressures, and recovery timelines, particularly in rural and semi-urban markets.

Credit Guarantee Schemes Take Center Stage

Credit guarantees have emerged as the primary demand from industry leaders for supporting micro borrowers and MSMEs. Shubha Bhanu, Associate Partner at MicroSave Consulting (MSC), highlighted expectations for relief measures through new credit guarantee schemes that would help smaller MFIs expand outreach and support borrowers. The microfinance sector has faced significant stress over the past year due to localized over-indebtedness, regulatory tightening, portfolio quality pressures, and funding challenges.

Manish Shah, MD & CEO of Godrej Capital, emphasized that the Budget can support financial deepening by strengthening risk-sharing structures such as credit guarantees and co-lending frameworks, which would help reduce borrowing costs and improve repayment predictability.

Refinance Windows and Long-Term Capital Access

Industry experts expect Budget 2026 to address funding friction by improving access to stable and longer-tenure capital. The following key proposals have been outlined:

Deepak Aggarwal, Co-founder, Co-CEO and CFO of Moneyboxx Finance, called for placing rural and semi-urban MSMEs and first-time borrowers at the center of the inclusion agenda, with NBFCs serving as the primary conduit for formal credit in these markets.

Ravi Narayanan, MD & CEO of SMFG India Credit, identified three structural priorities for Budget 2026-27: liquidity support, recovery mechanisms, and tax relief. He specifically advocated for a dedicated refinance window for NBFCs and expanded credit guarantee coverage to lower funding costs.

SARFAESI Threshold Reduction Gains Momentum

Multiple industry leaders have reiterated demands to lower the SARFAESI Act's minimum loan threshold for NBFCs from ₹20.00 lakh to ₹1.00 lakh to improve recovery efficiency and support asset quality. This reform would restore parity with housing finance companies and strengthen the recovery framework.

Bhupinder Singh, Promoter & CEO of InCred Holdings, described this as a decisive reform that could strengthen India's retail credit ecosystem, which continues to experience structural growth driven by rising consumption and deeper financial inclusion.

Digital Lending Framework and Technology Focus

Fintech-linked lenders and credit platforms expect policy clarity around digital lending with emphasis on transparency and consumer protection. Rohit Garg, CEO of Olyv, called for consistent policy frameworks for digital lending, stronger data infrastructure, and continued emphasis on financial literacy to ensure responsible credit delivery.

Joydip Gupta, APAC Head at Scienaptic, highlighted the importance of managing credit growth sustainably through stronger digital lending infrastructure and analytics-driven credit appraisal, enabling lenders to scale without taking undue risk.

Growth Projections and Recovery Outlook

The sector maintains a cautiously optimistic outlook despite ongoing challenges. Narayanan projected that overall credit demand remains healthy, but the sector is entering a phase of moderated growth.

Additional reform priorities include easing regulations around factoring services and accelerating adoption of TReDS platforms to enable faster working capital cycles for MSMEs, supporting the broader goal of financial inclusion and economic growth.

Tax policy experts have presented comprehensive recommendations for Budget 2026 to enhance India's mergers and acquisitions environment, particularly with the Income-tax Act, 2025 scheduled for implementation from April 1, 2026. The suggestions aim to address existing regulatory gaps and improve the ease of doing business for M&A transactions.

Fast-Track Demerger Tax Neutrality

A primary recommendation involves extending tax neutrality to fast-track demergers under Section 233 of the Companies Act, 2013. Currently, the Income-tax Act, 2025 provides tax neutrality only to NCLT-approved demergers under Sections 230 to 232, excluding fast-track demergers that enable small or closely held companies to undertake demergers without court approval.

The finance ministry's rationale for excluding fast-track demergers centers on concerns about potential valuation manipulation without court oversight. However, experts argue this approach contradicts the ease of doing business agenda, forcing genuine taxpayers to choose between transaction efficiency and tax benefits.

Contingent Consideration Clarity

Experts emphasize the need for clear taxation guidelines on earn-out, profit-linked, or contingent consideration arrangements that have become increasingly common in M&A transactions. These arrangements tie part of the sale consideration to achieving specific profitability or financial milestones.

The current legal framework lacks clarity on:

• Taxability of contingent payments
• Timing of taxation for such arrangements
• Treatment of milestone-based considerations

Foreign Company Merger Anomalies

The recommendations address existing inconsistencies in foreign company merger taxation. While foreign companies enjoy capital gains tax exemptions on direct or indirect share transfers during mergers with other foreign companies, shareholders of the amalgamating company face potential capital gains liability on share swaps.

This creates an anomaly compared to domestic mergers, which provide exemptions at both company and shareholder levels.

Capital Gains Tax Rate Concerns

The recent capital gains tax regime rationalization introduced higher long-term capital gains tax rates, which experts suggest adversely impacts investor returns and exit efficiency. The increased rates potentially drive investors toward jurisdictions with more favorable tax regimes.

Key concerns include:

• Reduced post-tax returns for investors
• Decreased competitiveness with other investment destinations
• Impact on foreign capital attraction

Experts recommend reducing capital gains tax rates, suggesting restoration of the earlier 10.00% rate to improve India's competitive position in attracting foreign investment.

Strategic Implementation Timeline

With the Income-tax Act, 2025 set for April 1, 2026 implementation, Budget 2026 represents the final opportunity to incorporate these amendments before the new framework takes effect. The recommendations aim to position India as a preferred destination for cross-border M&A activities while maintaining regulatory integrity and supporting corporate growth objectives.