Centre constitutes High-Level Committee on Banking for Viksit Bharat to recommend structural and regulatory reforms
Why this matters
Banking reform determines whether India can fund infrastructure, enterprises, jobs and inclusion without sacrificing depositor safety or financial stability. This committee links the next generation of banking regulation with Viksit Bharat 2047, making it relevant to both growth and governance questions.
In plain words
This committee sits at the intersection of two goals: India needs banks that can provide much more credit for long-term growth, but it also needs banks that remain safe, inclusive and trusted. The Government has therefore created a six-month High-Level Committee on Banking for Viksit Bharat, announced in the Union Budget 2026-27, to suggest structural, institutional, regulatory and legislative reforms for the sector. Suresh N. Patel, former Central Vigilance Commissioner, is its chairperson; the members include a serving Deputy Governor of the Reserve Bank of India, a former Indian Bank chief and a former Reserve Bank Deputy Governor. The Joint Secretary, Banking, Department of Financial Services, is the Member Secretary. (pib.gov.in)
Its work is wide-ranging. It will assess banking practices and safety rules, review the legal framework for banks including Regional Rural Banks and cooperative banks, estimate long-term capital needs, examine why businesses face different borrowing costs, and recommend measures to support private investment. It will also revisit Priority Sector Lending and the Lead Bank Scheme so that inclusion is better targeted and based on data. (pib.gov.in)
The technology challenge is equally important. Banks are moving towards Artificial Intelligence and digital innovation, but faster technology can also create fraud, data and cyber risks. The committee must therefore design a future-ready system: like widening a highway while strengthening its bridges, India must expand credit capacity while improving supervision, skills, consumer protection and resilience.
Key facts
- The committee was announced in the Union Budget 2026-27 and will have a six-month tenure.
- Former Central Vigilance Commissioner Suresh N. Patel will chair the committee.
- Its mandate covers banking practices, prudential norms, regulatory and legal frameworks, and long-term capital requirements.
- It will review the Priority Sector Lending framework and Lead Bank Scheme in the context of financial inclusion.
- The committee will propose a roadmap for AI and digital innovation in banking while addressing cyber risks and workforce capacity.
How we got here
India’s banking system has repeatedly been redesigned to balance social objectives with efficiency. Bank nationalisation in 1969 and 1980 expanded branch networks and directed credit towards agriculture and weaker sections, but later concerns emerged over low profitability, weak capital and poor loan quality. The 1991 balance-of-payments crisis triggered the first Narasimham Committee on the Financial System, whose recommendations supported competition, stronger supervision and objective safety rules. A second Narasimham Committee in 1998 further emphasised capital strength, loan classification, recovery and governance. (systemhealth.rbi.org.in)
Since then, reforms have included private-bank entry, technology-led payments, consolidation of public sector banks, stronger loan-recognition rules and new mechanisms for resolving bad loans. Yet structural questions remain: how to finance infrastructure and industry over long periods, how to reduce borrowing costs for productive firms, how to preserve rural and social lending, and how to regulate banks, Regional Rural Banks, cooperative banks and Non-Banking Financial Companies coherently. The 2026-27 Budget stated that the sector has strong balance sheets, improved asset quality and coverage exceeding 98 percent of villages, creating a window for forward-looking reform rather than crisis management. (indiabudget.gov.in)
The bigger picture
Economic
Credit for growth without instability
India’s development requires large, affordable and patient credit for infrastructure, manufacturing, services and smaller enterprises. The committee’s review of long-term capital requirements, funding sources and the cost of capital addresses the risk that banks may either lend too cautiously or expand recklessly. A sound reform package should deepen complementary funding channels, improve recovery and governance, and avoid forcing banks to carry every development burden alone. The Budget’s description of stronger balance sheets creates an opportunity to expand credit from a position of relative strength, not emergency recapitalisation. (indiabudget.gov.in)
The central economic challenge is to make credit cheaper and longer-term without weakening bank balance sheets.
Social
Inclusion beyond account opening
The committee will review Priority Sector Lending and the Lead Bank Scheme, showing that inclusion is not limited to opening accounts; it also requires timely, affordable and suitable credit. Rural borrowers, small farmers, micro-enterprises and weaker sections can remain excluded through paperwork, distance, lack of collateral or poor financial literacy. At the same time, politically directed lending can weaken repayment discipline if targeting is divorced from viability. A data-based framework should measure actual outcomes, regional gaps and borrower quality while retaining safeguards for vulnerable groups. (pib.gov.in)
The test of inclusion is productive and fair access to credit, not merely the number of bank accounts.
Science & Tech
Artificial Intelligence with accountability
Artificial Intelligence can improve fraud detection, customer service, credit assessment and early warning systems, but opaque models may reproduce bias or wrongly deny loans. Digital innovation also increases dependence on data, software and interconnected payment systems. The committee’s mandate rightly combines innovation with cyber-risk safeguards and workforce capacity. India will need human review for high-impact decisions, clear responsibility when automated systems fail, secure data practices and continuous training. Technology should make banking more accessible and efficient, not turn accountability into a ‘computer error’. (pib.gov.in)
Technology should expand access and efficiency while preserving explainability, security and human accountability.
Constitutional
Regulatory coordination and federal complexity
Banking regulation involves the Union government, the Reserve Bank of India and, in the cooperative sector, state-level institutions and laws. The committee’s proposed review of banks, Regional Rural Banks and cooperative banks therefore raises a coordination question: fragmented oversight can create gaps, while excessive centralisation can ignore local conditions. Reform should clarify responsibilities, strengthen information-sharing and protect regulatory independence. Ease of doing banking must not mean weaker safeguards for depositors, borrowers or public funds. The legal review should align institutional design with accountability rather than merely reduce compliance. (pib.gov.in)
Good banking reform requires clear responsibilities and coordinated supervision without sacrificing independence.
Ethical
Public purpose versus commercial discipline
Banks use public deposits and enjoy implicit public confidence, so their decisions have consequences beyond shareholders. Lending to priority sectors serves equity and balanced development, but repeated political interference, evergreening of loans or weak recovery can socialise losses. Conversely, excessive risk aversion can exclude precisely those borrowers who need formal credit. The committee must balance financial viability with social obligations through transparent targets, responsible pricing, borrower protection and professional governance. Ethical banking means neither indiscriminate lending nor abandoning socially important sectors. (systemhealth.rbi.org.in)
The right balance is socially purposeful lending governed by commercial prudence and public accountability.
The big debate
Should India prioritise globally competitive large banks and flexible lending, or preserve stronger directed-credit obligations for inclusion?
For
- Larger, well-capitalised banks can finance infrastructure, absorb shocks and compete internationally more effectively.
- Flexible lending based on risk can reduce misallocation, improve recovery and lower the cost of credit for productive firms.
- Technology-led assessment can identify underserved borrowers more accurately than rigid administrative targets.
Against
- Purely commercial lending may redirect credit towards safer urban borrowers and widen rural, regional and social inequalities.
- Priority-sector obligations correct market failures where collateral, information and income volatility exclude vulnerable borrowers.
- Rapid consolidation and automation may reduce local accountability, competition and employment in underserved areas.
On balance. India should pursue scale, competition and flexible risk-based lending, but not by abandoning inclusion. Priority-sector policy should become more outcome-based, transparent and data-driven, while strong governance, consumer protection and independent supervision prevent both political lending and exclusionary commercialism.
For or against?
“Larger, well-capitalised banks can finance infrastructure, absorb shocks and compete internationally more effectively.”
For or against?
“Rapid consolidation and automation may reduce local accountability, competition and employment in underserved areas.”
Answer it in Mains
GS3
Banking reforms must reconcile financial stability with the developmental role of credit. Discuss in the context of the High-Level Committee on Banking for Viksit Bharat.
Approach. Begin with banking as the bridge between savings and investment. Analyse capital strength, loan quality, inclusion, directed credit and governance; then explain why technology and supervision must advance together. Conclude with outcome-based inclusion and independent regulation.
Worth quoting. Narasimham Committee Reports, 1991 and 1998; RBI history of banking reforms and prudential norms. (systemhealth.rbi.org.in)
GS3
How can India expand Priority Sector Lending without creating moral hazard and weakening banking-sector efficiency?
Approach. Define the market failure behind priority credit. Discuss benefits and risks of targets, regional gaps, recovery problems and data-based delivery; recommend outcome measurement, borrower protection and professional appraisal. Conclude that inclusion requires both access and sustainability.
Worth quoting. RBI Draft Technical Paper on Review of Priority Sector Lending, 2024; Lead Bank Scheme review mandate. (rbi.org.in)
GS2
Digital transformation in banking offers efficiency but creates new governance risks. Examine.
Approach. Use the committee’s technology mandate as the introduction. Cover Artificial Intelligence, fraud, privacy, cyber risk, exclusion and workforce transition; propose human oversight, auditability, secure systems and grievance redress. Conclude with responsible innovation anchored in trust.
Worth quoting. High-Level Committee on Banking for Viksit Bharat Terms of Reference on Artificial Intelligence, cyber risks and capacity building. (pib.gov.in)
Essay
A globally competitive banking system is essential for achieving Viksit Bharat 2047. Discuss the institutional and regulatory reforms required.
Approach. Frame banking as productive infrastructure. Organise the essay around scale, competition, long-term finance, inclusion, technology, consumer protection and regulatory coordination. Balance ambition with safeguards, and conclude that resilient institutions matter as much as rapid credit expansion.
Worth quoting. Union Budget 2026-27 announcement and PIB notification establishing the committee; Budget emphasis on stability, inclusion and consumer protection. (indiabudget.gov.in)
Prelims quick-fire
- Body/Institution. The High-Level Committee on Banking for Viksit Bharat was announced in Union Budget 2026-27 and has a six-month tenure. (pib.gov.in) It is a government-appointed committee, not a permanent statutory regulator.
- Body/Institution. Suresh N. Patel, former Central Vigilance Commissioner, chairs the committee; the Joint Secretary, Banking, is Member Secretary. (pib.gov.in) Do not confuse the chairperson with the serving Reserve Bank Deputy Governor who is a member.
- Body/Institution. The committee includes Shirish Chandra Murmu, Padmaja Chunduru and N S Vishwanathan as members. (pib.gov.in) Padmaja Chunduru is identified as former Managing Director and Chief Executive Officer of Indian Bank.
- Term. Its mandate covers banks, Regional Rural Banks and cooperative banks, alongside long-term capital needs of wider financial institutions. (pib.gov.in) The mandate is wider than public sector banks alone.
- Scheme. Priority Sector Lending and the Lead Bank Scheme will be reviewed for relevance, effectiveness, coordination and data-driven credit delivery. (pib.gov.in) Review does not mean automatic abolition or dilution.
- Data. The Budget 2026-27 speech described village banking coverage exceeding 98 percent and improved banking-sector asset quality. (indiabudget.gov.in) The figure refers to coverage of villages, not universal use of banking services.
- Term. The committee will examine Artificial Intelligence, digital innovation, cyber-risk safeguards and workforce capacity in banking. (pib.gov.in) Technology is part of the formal mandate, not merely an incidental reform theme.
- Report/Index. The first Narasimham Committee reported in 1991 and the second Committee on Banking Sector Reforms reported in 1998. (systemhealth.rbi.org.in) The two committees belong to the post-1991 banking-reform sequence and had different reports.
What should happen
- Convert Priority Sector Lending into outcome-based targets with transparent regional, gender and borrower-level reporting. This would preserve inclusion while shifting attention from loan disbursement volumes to productive access, repayment quality and reduction of credit gaps. RBI Draft Technical Paper on Review of Priority Sector Lending, 2024 (rbi.org.in)
- Create a coordinated capital and funding roadmap for banks, Development Financial Institutions and Non-Banking Financial Companies. Long-term projects need diversified funding so that banks are not forced to finance every maturity and risk on their own balance sheets. High-Level Committee on Banking for Viksit Bharat Terms of Reference, PIB, 2026 (pib.gov.in)
- Adopt accountable Artificial Intelligence governance with model testing, human oversight, audit trails and strong cyber-risk controls. Innovation will be sustainable only when borrowers can challenge errors and institutions can identify, contain and report digital failures. High-Level Committee on Banking for Viksit Bharat Terms of Reference, PIB, 2026 (pib.gov.in)
- Clarify supervisory responsibilities across commercial banks, Regional Rural Banks and cooperative banks while improving information-sharing. A common risk picture and clearly assigned responsibility can reduce regulatory gaps without erasing local knowledge. High-Level Committee on Banking for Viksit Bharat Terms of Reference, PIB, 2026 (pib.gov.in)
- Link reform implementation to measurable timelines, public consultation and periodic parliamentary or public reporting. A committee report creates value only when recommendations are prioritised, sequenced and evaluated against outcomes.
Jargon, demystified
- Prudential norms and capital requirements
- Safety rules requiring banks to recognise risks, maintain buffers and limit excessive exposure so that depositors remain protected during losses. They support stability but may also make banks more cautious in lending.
- Priority Sector Lending and Lead Bank Scheme
- Priority Sector Lending directs credit to identified underserved sectors; the Lead Bank Scheme assigns district-level coordination for banking development. Both are inclusion instruments, but neither guarantees that credit will be productive or repaid.
- Regional Rural Banks and cooperative banks
- Regional Rural Banks focus on rural credit with shared ownership; cooperative banks are member-linked institutions subject to banking and cooperative oversight. Their regulation involves institutional and, in some cases, state-level coordination.
- Development Financial Institutions and Non-Banking Financial Companies
- Development Financial Institutions provide long-term project finance; Non-Banking Financial Companies provide financial services without being full commercial banks. They complement banks but can transmit financial stress through connected lending.
- Financial inclusion and cost of capital
- Financial inclusion means affordable access to useful financial services; cost of capital is the effective price paid to obtain funds. Lower borrowing costs help investment, but artificially cheap credit can encourage poor risk-taking.
- Artificial Intelligence and digital innovation
- Artificial Intelligence uses data-driven systems to perform tasks such as prediction or classification; digital innovation applies technology to improve banking services. Automated decisions require testing, accountability and human review.
- Cyber risk and resilience
- Cyber risk is the possibility of harm from attacks, failures or misuse of digital systems; resilience is the ability to withstand and recover from disruption. Cybersecurity is broader than preventing hacking; it includes recovery, reporting and continuity.
Check the term
What does "Prudential norms and capital requirements" mean?
Check the term
What does "Regional Rural Banks and cooperative banks" mean?