NEW DELHI: The government is set to soon constitute the proposed High-Level Committee on Banking for Viksit Bharat, with the aim of receiving its report within three to four months and initiating a new phase of comprehensive banking sector reforms.
Sources said the terms of reference for the committee are almost ready and the panel will be constituted once the members are finalised. The committee is expected to undertake a fundamental review of the banking sector architecture and recommend measures to strengthen the system in line with India’s long-term growth ambitions.
Among the key issues likely to be examined are the creation of larger Indian banks through consolidation, enhancement of foreign direct investment (FDI) limits in public sector banks (PSBs), rationalisation of voting rights for investors, and a review of regulatory requirements such as the Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) and banking licence norms.
The exercise comes amid a broader policy push to revive bank consolidation after a gap of nearly six years. The government’s long-term objective is understood to be the creation of four large banks, with at least two institutions aspiring to join the world’s top 20 lenders in terms of scale, strength and global competitiveness, while also deepening financial inclusion.
The review is being undertaken at a time when public sector banks are reporting their strongest financial performance in years. Aggregate net profit of PSBs rose to a record Rs 1.98 lakh crore in FY26, the highest-ever annual profit reported by the sector. Asset quality also improved significantly, with gross non-performing assets (GNPA) declining to a historic low of 1.93% and net NPAs falling to 0.39%, reflecting stronger balance sheets and prudent risk management.
With public sector banks’ total assets reaching Rs 283 lakh crore as of March 2026 and projected to double over the next five years, the need for long-term capital is expected to grow substantially. Higher foreign investment is being viewed as one possible source of capital.
Currently, FDI in public sector banks is capped at 20%. Several stakeholders have advocated raising the limit to 49% to bring it closer to the norms applicable to private sector banks (74%).
Investors have consistently highlighted the mismatch between ownership and voting rights. While shareholders in private banks can exercise voting rights of up to 26%, voting power in PSBs is capped at 10% regardless of shareholding. Industry participants are seeking a more aligned framework that links FDI limits with voting rights, while retaining the government’s minimum 51% ownership in PSBs.
Source: The Financial Express
