The banking sector, like many other industries, is anticipating specific measures in the upcoming budget to strengthen its stability and efficiency. A critical and longstanding demand among bank employees is the implementation of a 5-day workweek. Currently, there are no significant barriers to adopting this shift, especially since prominent institutions—including the Reserve Bank of India, Life Insurance Corporation of India, various insurance providers, stock exchanges, and foreign banks—have already made this transition. As a result, bank employees are hopeful that this long-sought change will be highlighted in the 2026 budget discussions.
In today’s evolving financial landscape, the reliance on digital platforms for banking transactions has surged, allowing customers to perform numerous banking activities from the convenience of their mobile devices. Tasks such as opening or closing accounts, transferring funds, and depositing or withdrawing cash can now be accomplished without stepping foot in a bank branch, showcasing a significant transformation in banking practices.
However, recent government tax policies have posed challenges for bank employees, as allowances and other benefits they previously received are now taxed as income. This new tax has strained bank staff’s financial well-being and had a detrimental effect on their morale. Addressing this issue by announcing a 5-day workweek alongside making allowances tax-exempt would not only provide immediate relief but also elevate the spirits of bank employees, ultimately enhancing overall performance within the banking sector.
One pressing issue banks face is the lack of affordable capital. In light of this, the government must consider implementing budgetary measures to expand banks’ deposit bases significantly. While there is a burgeoning demand for loans, the anticipated growth in deposits has not materialised, leading the Reserve Bank of India to implement measures such as reducing the repo rate and injecting liquidity into the banking system via open market operations (OMO).
For a sustainable resolution to the deposit shortage crisis, traditional investors must reinvest in the banking system. To encourage this, the government should introduce special tax incentives for bank deposits and consider abolishing existing taxes on them. Currently, taxes are levied on various savings products, including savings accounts, recurring deposits, and fixed deposits, which negatively impacts deposit growth. Additionally, it is vital to enact sensible tax provisions for mutual funds, pensions, insurance, and other financial products, ensuring that the banking sector and related institutions can access stable, low-cost capital. With a robust deposit base, banks would be better equipped to serve the heightened demand for loans, thereby driving economic growth and activity.
Furthermore, to combat fraud and ensure rightful ownership of funds, there is a pressing need to refine and clarify regulations surrounding inactive and dormant accounts. Data from June 2025 revealed that over ₹67,000 crore was sitting idle in these accounts across Indian banks, with no claimants to recover the funds. Strategic budgetary provisions could facilitate the utilisation of these funds for lending, thereby benefiting the banking sector.
Moreover, the half-yearly Financial Stability Report released by the Reserve Bank of India on December 31, 2025, indicated encouraging trends, with the gross non-performing asset (GNPA) ratio of banks dropping to 2.1% by September 2025 and projected to decrease further to 1.9% by March 2027. While current NPA levels are manageable, further improvements could be achieved by introducing robust measures such as credit guarantee schemes and risk-sharing mechanisms. By strengthening the banking framework, there is a significant opportunity to ensure ongoing economic stability and growth.
Micro, Small, and Medium Enterprises (MSMEs) are a vital engine of the economy, and the banking sector plays an indispensable role in bolstering this crucial segment. To further empower MSMEs, the government should allocate dedicated budgetary provisions to enhance their growth and sustainability. Presently, the country boasts over 65 million MSME units that collectively employ around 280 million individuals. This dynamic sector significantly contributes approximately 30% of the nation’s Gross Domestic Product (GDP) and accounts for roughly 45.73% of total exports, underscoring its importance in the economic landscape.
The current landscape shows that the MSME sector has experienced a boost due to heightened consumer demand during the festive season, improved cash flow dynamics, and the beneficial reforms to the Goods and Services Tax (GST) slabs introduced in September. To further catalyse the growth of this sector, the government should prioritise simplifying access to various government schemes and streamlining GST and other tax regulations in the upcoming budget. This strategic approach could substantially accelerate MSMEs’ growth trajectory.
Furthermore, this sector is witnessing a progressive transformation fuelled by the increasing adoption of digital tools, enhanced online payment systems, efficient cash flow management facilitated by Unified Payments Interface (UPI), and greater operational transparency enabled through digitalisation. However, to sustain this positive momentum, it is imperative to establish robust budgetary provisions that empower banks to support MSMEs further. Additionally, substantial investments to expand digital access in rural areas and Tier-2 and Tier-3 cities are critical for extending comprehensive banking services to remote regions and thereby fostering their development.
In the current scenario, banks must transcend mere financial assistance; they must evolve into strong, competitive entities. One viable strategy would be to consolidate smaller banks to form larger, globally competitive financial institutions capable of delivering transparent banking services nationwide. In pursuit of this goal, the integration of innovative technologies, including artificial intelligence and digital banking solutions, should be significantly amplified.
Moreover, attracting both foreign and domestic private capital investment through comprehensive tax reforms is essential to rejuvenate the MSME sector. To enhance the efficiency of the loan approval process, leveraging advanced technologies such as artificial intelligence and blockchain can significantly speed up transactions and to improve security. It is equally vital to devise and implement policies that encourage investments in green projects and crucial infrastructure, supported by concrete budgetary measures that facilitate these initiatives.
In conclusion, the forthcoming Union Budget, scheduled for presentation on February 1, 2026, holds the potential to substantially fortify the banking sector by introducing provisions focused on digital innovation, fostering financial inclusion, enhancing MSME lending, and improving the governance of public sector banks through the adoption of technologies such as artificial intelligence and blockchain. Additionally, implementing a five-day workweek in the banking sector, along with tax exemptions on allowances and other financial benefits for bank employees, would significantly enhance banks’ performance and profitability, contributing to a more resilient economic framework.
Satish Singh serves as a Senior Banking and Economic Columnist located in Mumbai.The insights presented in the article reflect his personal viewpoints and analysis.
