NEW DELHI: The high-level committee on banking reforms announced in the Budget is expected to examine a range of structural issues, including the possibility of public sector bank consolidation, as the government looks to further strengthen the financial sector.
Speaking at the post-Central Board meeting press conference of the Reserve Bank of India, Finance Minister Nirmala Sitharaman said the proposed committee was mentioned during the meeting, though detailed discussions were not held.
“It wasn’t discussed in the board meeting, but it was mentioned. It is a good step and needs to be done,” Sitharaman said, adding that the terms of reference for the panel are yet to be framed.
While she did not elaborate on the scope of the committee, its mandate is widely expected to cover structural reforms in the banking system, including governance, capital structure, and potential consolidation measures. Over the past several years, the government has undertaken large-scale mergers among public sector banks, reducing their number while creating larger, better-capitalised entities.
RBI Governor Sanjay Malhotra indicated that the central bank would closely cooperate with the government on any reform agenda emerging from the panel.
“We from the RBI will work with the government in whatever ways the government would like, so that the banking system is strong and continues to be sound and becomes even stronger to meet the needs,” Malhotra said.
The remarks come at a time when policymakers have repeatedly underlined improvements in the banking system’s fundamentals. During the press interaction, officials pointed to stronger capital adequacy, improved liquidity, rising profitability and significantly lower non-performing assets. Governance standards and internal systems have also seen marked improvements.
In her Budget speech, finance minister Sitharaman had proposed setting up a ‘High Level Committee on Banking for Viksit Bharat’, to comprehensively review the sector and align it with India’s next phase of growth, while safeguarding financial stability, inclusion and consumer protection.
“The Indian banking sector today is characterised by strong balance sheets, historic highs in profitability, improved asset quality and coverage exceeding 98% of villages in the country. At this juncture, we are well-placed to futuristically evaluate the measures needed to continue on the path of reform-led growth of this sector,” she had said in her Budget speech.