As part of her 2026-27 budget speech, Finance Minister Nirmala Sitharaman announced the formation of a high-level committee to review India’s banking sector, Mint reports. The panel is expected to prioritize strategic liability management and strengthen grievance redressal mechanisms for consumers, while decisions on new bank licenses and further public sector bank (PSB) mergers may take a back seat.
The banking sector in India faces multiple challenges that have become increasingly pressing amid the nation’s broader ambitions for developed status by 2047. Analysts point to misaligned liquidity strategies, governance gaps between public and private banks, outdated human resource policies, and incentive structures that have contributed to growing consumer complaints. Officials say the committee will also re-examine norms for issuing new licenses, including the question of corporate ownership, and assess the potential for another round of PSB consolidations.
Experts caution that allowing corporate houses to operate banks could intensify volatility in the liabilities market and amplify systemic risks, particularly as India’s credit-deposit ratio recently crossed 81%, raising concerns over funding costs and credit expansion sustainability. The shift of deposits toward alternative assets has already forced banks to rely on costlier sources, such as bonds or commercial paper, affecting margins and potentially slowing loan growth.
The committee is expected to focus on aligning the sector’s liquidity framework with new strategies for borrowing and lending, while evaluating whether existing PSB networks sufficiently support credit delivery or if broader economic growth impulses are needed. Strengthening customer service and grievance redressal is also a priority, as perverse incentives in private banks—such as aggressive sales of third-party insurance and mutual fund products—have created default hazards and eroded trust.
Reserve Bank of India Governor Sanjay Malhotra has previously emphasized that addressing shortcomings in grievance redressal is critical for financial stability. The newly formed committee will now set the agenda for reforms aimed at ensuring the banking sector supports sustainable growth while safeguarding consumer interests, Mint notes.
