Capital budgeting plays a critical role in determining investment efficiency and long-term financial stability in financial institutions. Despite being widely recognized in corporate finance theory, regulatory restrictions, risk exposure, liquidity needs, and governance mechanisms influence how Net Present Value (NPV) and Internal Rate of Return (IRR) are applied in Indian banks and Non-Banking Financial Companies (NBFCs). Through the synthesis of data from financial performance indicators, CAMEL framework variables, risk management systems, audit quality, digital transformation, and Environmental, Social, and Governance (ESG) considerations, this study offers an integrated review of capital budgeting practices in Indian banks and NBFCs. Previous studies show that traditional capital budgeting tools are still used, but that asset quality, sustainability, and technology-driven investments are becoming more and more important. Theoretical capital budgeting models and their actual application in regulated financial institutions, however, continue to differ significantly. The study comes to the conclusion that improving investment decision effectiveness and institutional resilience in the Indian banking sector requires a multifaceted strategy that integrates financial, risk, governance, and sustainability issues.