High-Level Committee on Banking for Viksit Bharat: Government Constitutes Reform Panel Under Former CVC Suresh N. Patel

Why in News

The Union Government constituted the "High-Level Committee on Banking for Viksit Bharat" on October 30, 2026, charged with undertaking a comprehensive review of India's banking sector and recommending structural, institutional, regulatory, and legislative reforms to make Indian banks globally competitive, financially inclusive, and resilient by 2047. The committee is chaired by Suresh N. Patel, former Central Vigilance Commissioner (CVC), and has a six-month tenure. Its constitution comes at a time when India is pursuing its Viksit Bharat 2047 vision and when banking sector stress — including residual Non-Performing Assets (NPAs), concentration risk among public-sector banks, and the rapid rise of shadow banking — demands fresh structural thinking.

Background

India's banking sector has been periodically reshaped by high-level reform committees. The two Narasimham Committees (1991 and 1998) transformed Indian banking from a repressed, directed-credit system into a deregulated, capital-adequacy-focused one. The Raghuram Rajan Committee on Financial Sector Reforms (2008) advocated competition, financial infrastructure, and expanded access. The Nachiket Mor Committee (2014) pioneered differentiated banking licences — giving rise to Small Finance Banks (SFBs) and Payments Banks — to deepen financial inclusion.

Despite these reforms, Indian banks remain smaller by global standards: India's largest bank, SBI, ranks outside the global top 15 by assets. The banking system's gross NPA ratio peaked at 11.6% in FY2018 and has declined substantially (below 3% by FY2026 as per RBI estimates), but concerns remain about NBFC inter-linkages, digital fraud, cyber risks, and the adequacy of Priority Sector Lending (PSL) for the formalising gig economy.

Current Developments

The committee was constituted amid three concurrent developments: (i) the government's strategic stake sale of IDBI Bank to Fairfax Financial Holdings — the first significant privatisation of a public-sector bank; (ii) the rapid growth of Non-Banking Financial Companies (NBFCs) and fintech lenders that now account for a growing share of retail credit; and (iii) the IDBI Bank employees' two-day strike on November 2–3, 2026, protesting the privatisation — signalling stakeholder resistance to structural changes.

The committee's constitution signals that the government views banking reform as systemic rather than transactional, aiming for a Narasimham-scale reimagining aligned with the Viksit Bharat 2047 framework.

Key Facts: Committee Composition

Key Terms of Reference

1. Global competitiveness roadmap: Review existing banking practices, identify international best practices, and prepare a roadmap for developing globally competitive Indian banks — including potential consolidation of public-sector banks (PSBs).
2. Long-term capital requirements: Assess funding needs of banks, Development Financial Institutions (DFIs), and NBFCs to support India's credit growth trajectory to 2047.
3. AI and digital innovation: Prepare a roadmap for AI and digital technology in banking with safeguards against cyber risks, fraud, and algorithmic bias.
4. Priority Sector Lending (PSL) review: Assess the PSL framework (40% of ANBC mandate) and Lead Bank Scheme for effectiveness in financial inclusion and credit delivery.
5. NBFC regulatory framework: Review NBFC oversight given their systemic interconnectedness, following the IL&FS (2018), DHFL (2019), and recent fintech-NBFC stress events.

Constitutional Provisions

• Entry 45 (Union List): "Banking" — banking regulation is an exclusive Central subject under Schedule VII.
• Entry 46 (Union List): "Bills of exchange, cheques, promissory notes and other like instruments." — governs the legal instruments underlying banking transactions.
• Article 19(1)(g): Right to practice any profession or carry on business — banking companies exercise this right; reasonable restrictions under 19(6) apply through RBI regulation.
• Article 110(e): Defines a Money Bill — banking legislation such as amendments to the Banking Regulation Act must go through the appropriate parliamentary procedure.

Legal Framework

• Banking Regulation Act, 1949: Governs commercial banks; grants RBI supervisory powers. Amendments in 2020 brought urban cooperative banks under RBI supervision.
• Reserve Bank of India Act, 1934: Constitutes RBI; gives it monetary policy and currency management powers. Amended by Finance Acts periodically.
• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002: Enables banks to recover bad loans without court intervention.
• Insolvency and Bankruptcy Code (IBC), 2016: Key NPA resolution mechanism; banks are the largest class of financial creditors under IBC proceedings.
• Prevention of Money Laundering Act (PMLA), 2002: Banks are obligated reporting entities; AML compliance is a key committee concern.

Institutional Framework

• Reserve Bank of India (RBI): Central bank and regulator of commercial banks and NBFCs; represented on the committee.
• SEBI (Securities and Exchange Board of India): Regulates capital markets; bank-raised bonds and debentures fall under dual oversight.
• IRDAI (Insurance Regulatory and Development Authority of India): Bancassurance models at banks bring IRDAI into the regulatory orbit.
• NARCL (National Asset Reconstruction Company Ltd.) — the 'bad bank': Government-backed; acquires stressed assets from banks. Its functioning will be reviewed by the committee.
• Financial Stability and Development Council (FSDC): Chaired by Finance Minister; coordinates among RBI, SEBI, IRDAI, PFRDA; the committee's recommendations will ultimately feed into FSDC deliberations.

Economic Dimensions

India's banking credit-to-GDP ratio (~57% as of FY2026) lags peers like China (~140%) and advanced economies (~100%+), highlighting significant credit deepening potential. The committee's mandate to assess long-term capital requirements is critical because:

• India needs ₹143 lakh crore in infrastructure investment by 2047 (NITI Aayog estimates); banks must be adequately capitalised to participate.
• MSME credit gap remains significant (estimated at ₹30+ lakh crore); PSL framework revision could direct more credit to the productive segment.
• The AI-in-banking mandate aligns with the RBI's own regulatory sandbox on fintech — recommending clear guardrails for Generative AI used in credit decisioning is timely.

Banking & financial awareness angle (for IBPS/SBI/RBI Grade B): The committee's PSL review may result in modifications to the 40% ANBC mandate, sub-sector targets (agriculture 18%, weaker sections 10%), or the introduction of new priority sub-categories such as green lending and gig-worker credit. Aspirants should track the report when published.

Social Dimensions

Financial inclusion remains central to the committee's mandate. Key gaps to be addressed include:

• Credit access for women entrepreneurs (only 14% of formal bank credit goes to women-led MSMEs).
• Agricultural credit in rain-fed districts versus irrigated areas — PSL mandates often fulfilled by lending to larger farmers in irrigated zones.
• Gig and platform workers now covered under the Code on Social Security, 2020, but lack formal credit histories — the committee may recommend open credit scoring frameworks (OCEN) integration.

Challenges

• Government vs. commercial imperatives: PSU banks face conflicting pressures — social-sector lending mandates vs. commercial return expectations from government as controlling shareholder.
• NBFC interconnectedness: Large NBFCs borrow from banks and sell loans back as co-lending; any NBFC stress rapidly propagates to banks (as seen in 2018–19 IL&FS crisis).
• Digital and cyber risk: Banking frauds exceeded ₹36,000 crore in FY2025 (RBI Annual Report); AI-based systems may amplify certain attack vectors.
• Implementation gap: Previous committee recommendations (Narasimham II, Rajan) have had partial implementation; political economy constraints slow structural reforms.

Government Initiatives

• Jan Dhan Yojana (PMJDY): 530+ million accounts; world's largest financial inclusion programme.
• NARCL (Bad Bank): Resolving legacy stressed assets.
• PSU Bank consolidation (2019): Merged 10 PSBs into 4; improved operational efficiency.
• RBI Regulatory Sandbox: Tests fintech innovations in a controlled environment.
• Digital Banking Units (DBUs): 100 units inaugurated in 2022 across underbanked districts.
• Account Aggregator (AA) framework: Enables consent-based financial data sharing, improving credit access for small borrowers.

Way Forward

• The committee should benchmark against the Rajan Committee (2008) and FSLRC (Financial Sector Legislative Reforms Commission, 2013) — the FSLRC's recommendations on a unified financial regulatory code remain largely unimplemented and deserve fresh consideration.
• Any recommendation on PSU bank privatisation must be grounded in the lessons of global banking privatisations (UK, Germany) — partial privatisation preserving financial inclusion mandates is preferable to full market exit, per the World Bank Financial Inclusion Database evidence.
• The AI roadmap must draw on the RBI's Draft AI Guidelines (2025) — the committee should provide legislative backing for algorithmic accountability in credit decisions, protecting borrowers from discriminatory AI outcomes (Article 14 non-discrimination principle).
• The 2nd ARC (2008) recommended performance-linked accountability for PSU bank boards — implementing this remains overdue and should feature in the committee's governance recommendations.

Possible Mains Questions

1. "India's banking sector requires structural transformation, not merely regulatory fine-tuning, to finance the aspirations of Viksit Bharat 2047. Critically examine the mandate and composition of the recently constituted High-Level Committee on Banking." (GS-III, 15 marks)
2. "The Priority Sector Lending (PSL) framework was designed for a different economic era. Assess whether it remains fit for purpose in 2026, and suggest how it should evolve." (GS-III, 10 marks)

Possible Prelims MCQs

1. Q: Which of the following correctly describes the term of reference NOT associated with the High-Level Committee on Banking for Viksit Bharat constituted in October 2026?
   (A) Preparing a roadmap for AI and digital innovation in banking
   (B) Reviewing the Priority Sector Lending framework
   (C) Determining the Repo Rate and Reverse Repo Rate for FY2027
   (D) Assessing long-term capital requirements of banks and NBFCs
   Answer: C (Repo Rate is set by RBI's MPC, not a committee)
2. Q: Which of the following banking reform committees was formed first?
   (A) Nachiket Mor Committee
   (B) Narasimham Committee II
   (C) Narasimham Committee I
   (D) Raghuram Rajan Committee on Financial Sector Reforms
   Answer: C (Narasimham I, 1991)

Essay Dimensions

1. From Narasimham to Viksit Bharat: seventy-five years of banking reform and the unfinished agenda
2. Public-sector banks: between development mandates and commercial imperatives — the eternal tension
3. Artificial intelligence in banking: opportunities for India's credit deepening and risks of algorithmic exclusion
4. Financial inclusion and credit gaps: can India bridge them without transforming the PSL framework?
5. The NBFC-bank nexus: systemic risk, regulatory arbitrage, and the case for a unified financial code

Interview Questions

1. Why do you think the government chose a former CVC — rather than a central banker or economist — to chair a banking reform committee?
2. India's NPA ratio has improved to below 3%. Does that mean banking sector reform is less urgent now? Argue either side.
3. How should the PSL framework evolve to cover gig workers and green energy transitions?
4. What lessons should India draw from China's PSU bank reform experience for its own banking sector consolidation?
5. The committee has AI banking on its agenda. What safeguards would you recommend to prevent AI-driven credit discrimination against marginalised communities?

FAQ

Who is the Central Vigilance Commissioner and why is a CVC chairing a banking committee?

The Central Vigilance Commissioner heads the Central Vigilance Commission — India's apex integrity institution that supervises vigilance administration in central government organisations, including PSU banks. A former CVC brings an anti-corruption and governance lens, which is relevant to historical NPA crises where governance failures in PSU bank lending were documented.

What is Priority Sector Lending?

The RBI mandates all scheduled commercial banks to lend at least 40% of their Adjusted Net Bank Credit (ANBC) to 'priority sectors': agriculture (18%), MSMEs, education, housing (affordable), renewable energy, social infrastructure, and weaker sections (10%). The mandate channels formal credit to sectors that would otherwise rely on informal or exploitative sources.

How is this committee different from earlier banking reform panels?

Earlier committees (Narasimham 1991/1998) focused on capital adequacy, NPA classification, and market liberalisation. This committee's mandate is broader: it covers AI-driven banking, the gig economy, NBFC systemic risk, and the entire reform architecture needed for Viksit Bharat 2047 — making it arguably the most comprehensive banking reform mandate since 1991.

Further Reading

• RBI Annual Report 2025–26: rbi.org.in
• FSLRC Report 2013 (Ministry of Finance): finmin.nic.in
• Narasimham Committee Reports: rbidocs.rbi.org.in