The government may constitute the proposed High-Level Committee on Banking for Viksit Bharat by the first quarter of FY27, with broad terms of reference (ToR) aimed at undertaking comprehensive reforms in the banking sector.
Although the finer details are still being worked out, Financial Services Secretary M. Nagaraju, who is set to superannuate in May, may head the committee, sources said. Former State Bank of India chairman Dinesh Khara could be a member of the panel. Parallel to finalising the ToR, efforts are underway to identify panel members, sources said.
The panel will likely be given adequate time to deliberate and submit its recommendations, possibly by December or January following its formation, sources said.
According to officials, the proposed committee will fundamentally re-examine the banking sector. One of its key objectives will be to facilitate the creation of larger Indian banks while also strengthening financial inclusion. These deliberations come amid a broader policy ambition to revive bank consolidation after a six-year hiatus. The goal is to build three to four large lenders, with at least two institutions aspiring to enter the global top 20 in terms of scale and strength.
Scaling Up
The committee’s likely mandates include reviewing foreign direct investment (FDI) limits in public sector banks (PSBs), potential consolidation measures, and reforms related to governance and voting rights across the banking system, including private banks.
Currently, FDI in PSBs is capped at 20%. Stakeholders have called for raising this limit to 49%, aligning it closer to private-sector norms.
Public sector banks’ total assets, which stood at Rs 261 lakh crore as of September 2025, are projected to double over the next five years, underscoring the scale and urgency of reform.
Bridging the Gap
As credit demand grows in line with economic expansion, PSBs will require sustained access to long-term capital. Increased foreign investment is viewed as a possible avenue to meet these capital needs. However, voting rights remain a significant concern for investors. In private banks, shareholders can exercise voting rights up to 26%, whereas in PSBs, voting power is capped at 10%, irrespective of the size of shareholding. This disparity has constrained foreign participation. Overseas shareholding in SBI, the country’s largest bank by assets, is around 11%, and it remains negligible in several smaller PSBs.
Investors are seeking a more coherent and aligned framework that harmonises FDI caps with voting rights, while acknowledging that the government would continue to hold at least 51% ownership in PSBs. In the private banking sector, demands for enhanced voting rights have persisted since the cap was last raised to 26% in 2012.
Historically, the government has constituted expert committees to address evolving banking sector needs. These included the Narasimham Committee I (1991) chaired by M. Narasimham, which focused on liberalisation and the entry of private banks; Narasimham Committee II (1998), which addressed recapitalisation and consolidation; and the Bank Boards Bureau/Governance Reforms Committee (2014) led by P. J. Nayak, which examined reducing government ownership in PSBs.
The proposed panel is envisioned in the context of the Viksit Bharat objective, with a forward-looking mandate toward 2047. It will assess the structural and policy measures necessary in the banking sector to support India’s growth ambitions and achieve developed nation status.