The Union's Ministry of Finance has established a long-awaited high-level committee to analyze the country's banking sector. The committee's task is to develop structural, regulatory, and legislative changes that will enable banks to achieve global competitiveness and better meet the needs of the developing economy.
The Banking Committee for Viksit Bharat, first announced by Finance Minister Nirmala Sitharaman in the Union Budget for 2026–27, will be headed by former Central Vigilance Commissioner (CVC) Suresh N Patel. He possesses over thirty years of experience in the banking sector, having previously served as Managing Director and CEO of Andhra Bank, as well as Executive Director of Oriental Bank of Commerce.
The committee includes Reserve Bank of India (RBI) Deputy Governor Shirish Chandra Murmu, Padmaja Chunduru, former Managing Director and CEO of Indian Bank, and N S Vishwanathan, former Deputy Governor of the RBI. The joint secretary (Banking) of the Department of Financial Services will serve as the committee's secretary. According to the Ministry of Finance statement, the committee has six months to complete its work, with the deadline set for April 2027.
Although the committee's mandate does not explicitly require bank consolidation, Shaktikanta Das, the Prime Minister's Chief Secretary, stated at the Business Standard BFSI Insight Summit in Mumbai on Tuesday that India must create banks and financial institutions of such scale, stability, and international presence to compete with leading global lenders. His remarks hinted at the necessity for further consolidation of Public Sector Banks (PSBs).
A crucial part of the commission's directives is the review of the Priority Sector Lending (PSL) system and the Leading Bank Scheme. The committee will assess their relevance, effectiveness, and coordination in ensuring inclusive and balanced lending, placing greater emphasis on data-driven lending and evolving economic priorities. In May, the Council of Economic Advisers to the Prime Minister also called for a review of the PSL system, arguing that it should prioritize social equity by directing credit to small and marginalized farmers, micro-enterprises, and vulnerable populations, instead of maintaining a broad sectoral classification that has expanded over time.
Another key area will be the assessment of capital requirements for banks, Development Financial Institutions (DFIs), and Non-Banking Financial Companies (NBFCs), along with formulating recommendations on funding sources and mechanisms to support credit growth. Sachin Sachdeva, Vice President and Head of Financial Sector Ratings at Icra, noted that reviewing long-term capital needs and financing mechanisms will be particularly vital for sustaining strong credit growth by banks and financial institutions. He added that 'adequate capital, competitive financing, and a favorable regulatory framework supported by appropriate prudential safeguards will be crucial to supporting India's growing investment needs.'
The committee will also examine differences in the cost of capital for enterprises and propose policy measures to stimulate private investment and support sustainable economic growth. An analysis of existing regulatory and legal frameworks governing commercial banks, regional rural banks, and cooperative banks will be conducted to enhance efficiency and simplify access and operations. Furthermore, the panel will evaluate current banking practices and prudential norms against global best practices and propose a roadmap for creating globally competitive Indian banks.
This process occurs amid India's drive to expand the scale and reach of its banking system while meeting the financial needs of a growing economy. The ability of banks to mobilize capital, manage risks, and efficiently provide credit will be critical for financing investments and supporting the government's ambitions for Viksit Bharat by 2047.
The committee will also prepare a plan for implementing Artificial Intelligence (AI) and digital innovations in banking institutions, as well as cybersecurity protection measures. It will recommend measures for talent attraction and capacity building to prepare the banking workforce for technological changes. The charter also allows the government to refer additional matters to the committee for consideration.
Kuntal Sur, Partner and Head of Financial Risk and Regulatory Department at PwC India, believes that this review will be crucial as the banking sector expands to meet the lending needs of the next generation, strengthen risk management, develop innovative financial products, and accelerate digital transformation. Sur added: 'The resulting structural reforms are expected not only to strengthen capital efficiency but also to create an inclusive financial ecosystem capable of supporting India's long-term macroeconomic ambitions.'
The committee is expected to use this opportunity to re-examine several long-standing structural and regulatory issues in the banking sector. These include discussions on allowing corporations to enter the banking business, the existing 26 percent limit on large shareholders' voting rights, and the need to optimize the approval process for Foreign Direct Investment (FDI) in banks.
The panel is also expected to study ways to attract a larger volume of domestic and foreign capital into the banking system to support the creation of larger lenders capable of financing India's growing economy. This may involve reviewing restrictions on large shareholders' voting rights and exploring the possibility of converting large NBFCs into banks subject to appropriate regulatory guarantees.
The banking sector has been the subject of a series of major foreign investments in recent years. These include the proposed acquisition by Fairfax Financial Holdings of 60.72 percent of IDBI Bank shares for 52,878 crore rupees ($5.56 billion), the acquisition of 60 percent of RBL Bank shares by Emirates NBD for approximately 26,016 crore rupees ($2.75 billion), and the acquisition of 20 percent of Yes Bank shares by Japan's SMBC for approximately 13,483 crore rupees ($1.6 billion).
Currently, the Indian banking sector comprises 12 public sector banks, 21 private banks, 11 small finance banks, and five payment banks. Since the beginning of the millennium, the RBI has issued only four universal banking licenses—Kotak Mahindra Bank, Yes Bank, Bandhan Bank, and IDFC Bank (which later became IDFC First Bank)—despite private lenders continuously expanding their presence and reducing the dominance of public sector banks. Last year, the regulator approved the application of AU Small Finance Bank to convert into a universal bank.
