Centre to constitute high-level committee on 'Banking for Viksit Bharat'
2-minute summary
Union Finance Minister Nirmala Sitharaman announced that the government will soon constitute a high-level committee on 'Banking for Viksit Bharat'. First proposed in the Union Budget on February 1, 2026, the committee is tasked with comprehensively reviewing India's banking sector architecture. The primary objective is to align financial intermediation with India's long-term growth targets as it transitions toward a developed nation ('Viksit Bharat'). Speaking at the two-day Public Sector Bank (PSB) Confluence (PSB Manthan) organized by the Department of Financial Services, the Finance Minister emphasized that the panel will provide strategic recommendations to the government. Crucially, the committee's mandate will balance growth-oriented reforms with the preservation of financial stability, financial inclusion, and robust consumer protection. This initiative marks a significant step in reforming the banking sector to support India's next phase of economic expansion and credit delivery.
Why it's in the news
Finance Minister Nirmala Sitharaman announced at the PSB Confluence that the government will soon notify the high-level committee on 'Banking for Viksit Bharat'. This panel, originally proposed in the Union Budget 2026, aims to reform the banking sector to support India's long-term growth goals.
Background and context
India's banking sector has undergone significant transformations over the past decade, transitioning from a period marked by high Non-Performing Assets (NPAs) and double-balance-sheet crises to one of robust balance sheets, improved capital adequacy, and profitability. Reforms like the Insolvency and Bankruptcy Code (IBC) of 2016, the consolidation of Public Sector Banks (PSBs), and the clean-up of bad loans have revitalized the sector. However, as India aims to become a developed nation ('Viksit Bharat') by 2047, the credit needs of the economy are expected to grow exponentially. The current banking architecture must evolve to support massive infrastructure financing, deep financial inclusion, digital banking innovations, and green transition funding. Historically, landmark committees like the Narasimham Committees (I and II) in the 1990s and the PJ Nayak Committee (2014) shaped India's modern banking landscape. The proposed 'Banking for Viksit Bharat' committee represents the next milestone, aiming to align financial intermediation with India's high-growth trajectory while ensuring systemic stability.
Constitutional provisions
- Seventh Schedule (Union List - Entry 45) — Grants the Parliament of India exclusive legislative competence over the subject of 'Banking'.
Committees and reports
- Narasimham Committee I (Committee on the Financial System) — Laid the foundation for modern banking reforms by recommending reduction in SLR/CRR, interest rate deregulation, and introduction of capital adequacy norms.
- Narasimham Committee II (Committee on Banking Sector Reforms) — Focused on structural issues, bank mergers, and strengthening the capital adequacy of the banking system.
- PJ Nayak Committee — Recommended governance reforms in Public Sector Banks (PSBs) and the establishment of a Bank Board Bureau (now Financial Services Institutions Bureau).
Government schemes
- Pradhan Mantri Jan Dhan Yojana (PMJDY) — The national mission for financial inclusion, which aligns with the proposed committee's core mandate of safeguarding financial inclusion.
- EASE (Enhanced Access and Service Excellence) Reforms — A common reform agenda for Public Sector Banks (PSBs) aimed at institutionalizing clean, smart, and tech-enabled banking.
International organisations
- Basel Committee on Banking Supervision (BCBS) — Formulates global standards on banking regulation (Basel III/IV norms) which influence Indian banking stability frameworks.
Previous UPSC questions on this theme
- Prelims GS-1 2018 — With reference to the governance of public sector banking in India, consider the following statements : 1. Capital infusion into public sector banks by the Government of India has steadily increased in the last decade. 2. To put the public sector banks in order, the merger of associate banks with the parent State Bank of India has been affected. Which of the statements given above is/are correct ? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2
Mains practice: Analyze the need for restructuring India's banking architecture to support the vision of 'Viksit Bharat' by 2047. What key challenges must the proposed high-level committee address?
The vision of 'Viksit Bharat' by 2047 requires a multi-trillion-dollar economy supported by a robust, deep, and resilient financial sector. The proposed high-level committee on 'Banking for Viksit Bharat' is a timely step to align financial intermediation with India's long-term growth targets.
• **Need for Restructuring:**
• **Scale of Financing:** India's current banking sector size is relatively small compared to its GDP when compared with other major economies. To fund massive infrastructure projects, banks need greater capital scale.
• **Credit-to-GDP Ratio:** India's credit-to-GDP ratio (around 50-55%) is significantly lower than the G20 average, indicating under-penetration of formal credit.
• **Digital Transformation:** The rapid rise of FinTech and digital public infrastructure (DPI) requires a regulatory framework that fosters innovation while mitigating systemic risks.
• **Key Challenges to Address:**
• **Balancing Growth and Stability:** Accelerating credit delivery to high-growth sectors without repeating the NPA crises of the past decade.
• **Financial Inclusion:** Ensuring credit reaches underserved sectors like MSMEs, agriculture, and rural enterprises to foster inclusive growth.
• **Consumer Protection:** Safeguarding retail depositors against rising cyber frauds, mis-selling of financial products, and predatory lending practices.
• **Green Financing:** Developing frameworks for funding climate transition and sustainable development projects.
In conclusion, for India to achieve its developed nation status, its banking sector must transition from being risk-averse to being a proactive partner in growth. The high-level committee must lay down a roadmap that fosters competitive, technologically advanced, and well-regulated financial institutions.
Prelims practice questions
Q1. With reference to the proposed high-level committee on 'Banking for Viksit Bharat', consider the following statements: 1. It was first proposed in the Union Budget of 2026. 2. Its mandate includes safeguarding financial stability, inclusion, and consumer protection. Which of the statements given above is/are correct?
- 1 only
- 2 only
- Both 1 and 2
- Neither 1 nor 2
Answer: C. Both statements are correct. The high-level committee on 'Banking for Viksit Bharat' was proposed in the Union Budget on February 1, 2026, with the mandate to comprehensively review the sector, align it with growth, and safeguard financial stability, inclusion, and consumer protection.
Q2. Which of the following schedules of the Constitution of India contains 'Banking' as a subject, and under which list?
- Ninth Schedule, Union List
- Seventh Schedule, State List
- Seventh Schedule, Union List
- Seventh Schedule, Concurrent List
Answer: C. 'Banking' is listed under Entry 45 of the Union List (List I) in the Seventh Schedule of the Constitution of India, giving the Parliament exclusive power to legislate on it.
Q3. The 'EASE' (Enhanced Access and Service Excellence) reforms, often seen in the news, are primarily aimed at reforming which of the following sectors in India?
- Public Sector Banks
- Micro, Small and Medium Enterprises
- Agricultural Marketing
- Primary Education Sector
Answer: A. EASE is a common reform agenda for Public Sector Banks (PSBs) aimed at institutionalizing clean, smart, and tech-enabled banking, driven by the Department of Financial Services (DFS).
Revision flashcards
- What is the primary objective of the proposed 'Banking for Viksit Bharat' committee? To comprehensively review the banking sector and align financial intermediation with India's next phase of growth, while safeguarding financial stability, inclusion, and consumer protection.
- In which Union Budget was the 'Banking for Viksit Bharat' committee first proposed? It was proposed in the Union Budget presented on February 1, 2026.
- Which entry in the Seventh Schedule of the Indian Constitution deals with 'Banking'? Entry 45 of the Union List (List I).
- Which landmark committee in 1991 laid the foundation for modern banking sector reforms in India? The Narasimham Committee I (Committee on the Financial System).
- What is the significance of the 'PSB Confluence' (PSB Manthan) mentioned in the news? It is an ideation conclave organized by the Department of Financial Services (DFS) for Public Sector Banks to discuss strategic reforms and growth.