The government has constituted a high-level committee on banking reforms to examine ways to make Indian banks globally competitive, financially inclusive and resilient, with its broad mandate potentially bringing issues such as bank consolidation and foreign direct investment (FDI) in public sector banks (PSBs) into focus.
The High Level Committee on Banking for Viksit Bharat will review the country's banking sector and recommend structural, regulatory, institutional and legislative reforms. While its terms of reference cover a wide range of issues, sources said the panel's broad mandate could also bring discussions around further bank mergers and higher foreign investment in public sector banks into focus.
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The committee will be chaired by former Central Vigilance Commissioner Suresh N. Patel. Its members include Reserve Bank of India (RBI) Deputy Governor Shirish Chandra Murmu, former Indian Bank MD and CEO Padmaja Chunduru, and former RBI Deputy Governor N.S. Vishwanathan. The Joint Secretary (Banking) in the Department of Financial Services will serve as the member secretary.
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The panel will have six months to submit its recommendations. Its findings could help shape the next phase of banking sector reforms, covering capital requirements, regulation, technology adoption, financial inclusion and the structure of Indian lenders.
Why Has The Government Set Up The Banking Committee?
The committee was announced by Finance Minister Nirmala Sitharaman in her Union Budget 2026-27 speech. Its objective is to assess the current structure and functioning of the banking system and identify reforms required to support India's long-term economic ambitions. The government said the review would focus on making Indian banks globally competitive, financially inclusive and resilient as the country works towards the Viksit Bharat 2047 goal.
One of the committee's key responsibilities will be to assess existing banking practices and prudential norms, identify global best practices and recommend how these can be adapted to the Indian banking system.
It will also prepare a roadmap for creating globally competitive banks, potentially bringing the question of the appropriate scale and structure of Indian lenders into the discussion.
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The committee's recommendations are expected within six months. Its findings could help shape the next phase of banking sector reforms, covering capital requirements, regulation, technology adoption, financial inclusion and the structure of Indian lenders.
Will More Public Sector Bank Mergers Be On The Agenda?
The committee's mandate includes a review of the existing banking structure and regulatory framework, which could bring the issue of further consolidation among public sector banks into focus. India has already undertaken a major consolidation exercise in the public sector banking space. In April 2020, 10 public sector banks were merged into four larger lenders, reducing the number of state-owned banks from 18 to 12.
The exercise was aimed at creating larger banks with stronger balance sheets, greater operational scale and improved capacity to finance economic growth.
The new committee will examine global banking practices and provide a roadmap for building globally competitive Indian banks. Its recommendations could therefore have implications for the future structure of the public sector banking system.
However, the terms of reference do not explicitly announce another round of bank mergers. Any recommendation on consolidation would depend on the committee's assessment.
Could FDI Limits In PSU Banks Come Under Review?
The committee's broad mandate could also bring the issue of foreign investment in public sector banks into focus. At present, foreign investment in public sector banks is capped at 20%, compared with a higher limit of 74% in private sector banks, subject to applicable conditions and regulatory approvals.
A review of the banking sector's capital requirements, funding sources and long-term growth needs could prompt discussions around whether the existing investment framework needs to be revisited.
However, the committee's published terms of reference do not specifically mention raising FDI limits in public sector banks. Any change would require a separate policy decision by the government.
AI, Capital Requirements And Priority Sector Lending On Agenda
Beyond consolidation and foreign investment, the committee has been tasked with examining several important areas of banking reform. It will assess the long-term capital requirements of banks, development financial institutions and non-banking financial companies, and recommend funding sources and mechanisms to support credit growth.
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The panel will also examine differences in the cost of capital for businesses and suggest policy measures to encourage private investment and sustainable economic growth.
Technology adoption is another key area. The committee will prepare a roadmap for artificial intelligence and digital innovation in banking institutions, while recommending safeguards against cyber risks. It will also examine talent acquisition and capacity-building requirements to prepare the banking workforce for future challenges.
The Priority Sector Lending (PSL) framework and Lead Bank Scheme will also be reviewed to assess their relevance and effectiveness in promoting financial inclusion and balanced credit delivery.
The panel will additionally examine the regulatory and legal frameworks governing banks, including Regional Rural Banks and cooperative banks, and recommend changes to improve efficiency and ease of doing banking.
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