The Government of India Constitutes the ‘High Level Committee on Banking for Viksit Bharat’

1. At a Glance

• The Government of India has set up an expert committee to review the whole banking sector and recommend structural, institutional, regulatory and legislative reforms [1].
• The aim is a banking system that is globally competitive, financially inclusive and resilient for Viksit Bharat @2047 [1].
• Its mandate is unusually wide. It covers prudential norms, the legal framework for RRBs and Cooperative Banks, long-term capital for Banks, DFIs and NBFCs, AI and cyber risk, and PSL and the Lead Bank Scheme [1].
• Why it matters: this could become the first broad banking-reform committee of the "Amrit Kaal" era. It links GS-III (banking, inclusive growth, investment) with GS-II (institutions and governance).

2. Why in the News

• The Committee was announced in the Union Budget 2026-27 speech, delivered on 1 February 2026 [2][3].
• It was constituted and notified on 30 October 2026, with a six-month tenure [1].

3. Background & Evolution

• Rationale given in the Budget: the banking sector has strong balance sheets, record profitability, better asset quality and coverage of over 98% of villages. The government says this makes it the right moment for a comprehensive review aligned with the next phase of growth [2][3].
• Stated guardrails: the review must protect financial stability, financial inclusion and consumer protection [2][3].
• Timeline:
• Nov 1969: The Nariman Committee recommends an "area approach", under which each public sector bank concentrates on certain districts [5].
• Dec 1969: RBI launches the Lead Bank Scheme [5].
• 2009: RBI's High Level Committee reviews the Lead Bank Scheme. This is the last review recorded in RBI's master circular [5].
• 1 Feb 2026: The Budget 2026-27 speech announces the HLC on Banking for Viksit Bharat [2][3].

• 30 Oct 2026: The Committee is constituted and notified [1].

• Related Budget 2026-27 measures for the financial sector:

• Restructuring of Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) to give public sector NBFCs scale and efficiency [3][4].
• Review of the Foreign Exchange Management (Non-debt Instruments) Rules to simplify foreign investment [3][4].

4. Core Static Facts

Terms of Reference [1]:

1. Assess current prudential norms, identify global best practices and adapt them to India. Give a roadmap for globally competitive banks.
2. Review the regulatory and legal frameworks for banks, including RRBs and Cooperative Banks, for efficiency and ease of doing banking.
3. Assess the long-term capital needs of Banks, DFIs and NBFCs, and recommend funding sources and enabling mechanisms for credit growth.
4. Examine differences in the cost of capital for business, and suggest options to boost private investment.
5. Prepare a roadmap for AI and digital innovation with cyber-risk safeguards, plus a talent acquisition and capacity-building strategy.
6. Review the relevance, effectiveness and coordination of Priority Sector Lending and the Lead Bank Scheme, aiming for inclusive, balanced and data-driven credit delivery.

Linked static concepts:

• PSL target: 40% of ANBC or of the Credit Equivalent of Off-Balance Sheet Exposure, whichever is higher. It applies to domestic SCBs and to foreign banks with 20 or more branches [6].
• ANBC (Adjusted Net Bank Credit): outstanding bank credit, minus bills rediscounted with RBI and other approved institutions, plus permitted non-SLR bonds in the HTM category and other eligible investments [6].
• PSL shortfall: banks that miss the target are allocated contributions to the RIDF (NABARD) and to funds with NHB, SIDBI and MUDRA [6].
• Lead Bank Scheme: coordinates banks and development agencies at the district level to expand credit to priority and other sectors [5].

5. Multi-Dimensional Analysis

Economic

• Long-term capital for Banks, DFIs and NBFCs is the binding constraint on infrastructure and investment credit needed for 2047 growth targets [1].
• The ToR on cost of capital targets the gap in private investment and the higher borrowing costs Indian firms face [1].
• The Budget's PFC–REC restructuring points the same way: scale and efficiency in public-sector lenders [3][4].

Social / Inclusion

• The PSL and Lead Bank Scheme review aims at inclusive, balanced, data-driven credit delivery for agriculture, MSMEs and weaker sections [1].
• The 98% village coverage figure shows that access is mostly achieved, so the next step is the quality and adequacy of credit [3].

Legal / Regulatory

• The review of legal frameworks for RRBs and Cooperative Banks matters because cooperative banks have historically faced governance and supervision problems [1].
• Adapting global prudential best practices means calibrating Basel-type norms to Indian conditions instead of copying them [1].

Scientific / Technological

• The AI and digital innovation roadmap comes paired with cyber safeguards [1].
• Workforce capacity-building is an explicit term of reference [1].

Governance / Administrative

• DFS acts as Member Secretary, so the review is government-led. This raises the question of coordination with RBI, the banking regulator [1].
• A six-month tenure is short for a review this wide, so recommendations may need to be implemented in phases [1].

6. Recent Developments (last 12-18 months)

• 1 Feb 2026: Budget 2026-27 announces the Committee, together with the PFC/REC restructuring and the FEM (NDI) Rules review [2][3][4].
• Feb 2026: PRS Monthly Policy Review records the Budget's financial-sector proposals [4].
• 30 Oct 2026: Committee constituted and notified, with a six-month tenure [1].

7. Prelims Hooks

• The HLC on Banking for Viksit Bharat was announced in the Union Budget 2026-27 [2].
• The Budget speech was delivered on 1 February 2026 [3].
• The Committee was notified on 30 October 2026 [1].
• Its tenure is six months [1].
• Its Member Secretary is the Joint Secretary (Banking), DFS, Ministry of Finance, not an RBI official [1].
• Its ToR explicitly names RRBs and Cooperative Banks for review of the legal and regulatory framework [1].
• The long-term capital assessment covers Banks, DFIs and NBFCs [1].
• PSL and the Lead Bank Scheme are reviewed together, with a focus on how well they coordinate [1].
• The Budget says banking coverage extends to more than 98% of villages [3].
• The Lead Bank Scheme was launched by RBI in December 1969, following the Nariman Committee (Nov 1969) [5].
• RBI's High Level Committee last reviewed the Lead Bank Scheme in 2009 [5].
• The PSL target for domestic SCBs and foreign banks with ≥20 branches is 40% of ANBC or CEOBE, whichever is higher [6].
• PSL shortfalls are deposited in the RIDF, maintained by NABARD [6].
• Budget 2026-27 also proposed restructuring PFC and REC [3].

8. Why 'Banks Are Strong Now' Is Only Half the Story

• Today's strong balance sheets were bought partly with taxpayer money
• The Budget says now is the right time for reform because banks have record profits and cleaner books [2][3].
• Those clean books came after a large rescue. In October 2017 the government announced a Rs 2.11 lakh crore recapitalisation package for public sector banks (recapitalisation means the owner puts fresh capital into a bank whose capital was eaten up by bad loans) [13].
• Of that package, Rs 1,35,000 crore came through recapitalisation bonds and Rs 18,139 crore from the Budget. Banks raised the rest from the market [13].

• So the question for the Committee is not only 'how do we grow?'. It is also 'how do we stop the next bad-loan cycle from landing on the taxpayer again?'

• The good health is uneven across types of banks

• The record-profit story is mostly about scheduled commercial banks.
• Urban cooperative banks have had a weaker record. Their gross NPA ratio (the share of loans not being repaid) rose to 6.0% at end-March 2015, from 5.7% a year earlier [7].

• This is why ToR 2 names RRBs and Cooperative Banks separately. One average figure for 'the banking sector' hides the weakest part.

• What this means in an answer: do not accept 'banks are strong' as a given. Say which banks are strong, and what that strength cost.

9. Why Cooperative Banks Still Answer to Two Bosses

• The old problem: RBI could license a bank but could not fix its management
• Before 2020, RBI controlled licensing and lending rules for urban cooperative banks.
• To act on management, restructuring or closure, it needed the state Registrar of Cooperative Societies [8].

• This split is called dual control. Reports at the time blamed it for the weak performance of these banks [8].

• The 2020 law fixed part of it, not all of it

• The Banking Regulation (Amendment) Act, 2020 gave RBI power over management, capital, audit and winding up of cooperative banks [8].
• But for banks registered under state law, RBI must consult the state government before removing the board [8].

• The changes also clashed with various state and central cooperative laws [9].

• Multi-state cooperative banks still complain of two regulators

• These banks told a Parliamentary Joint Committee that they still face dual regulation, by RBI and by the Ministry of Cooperation [10].

• So 'ease of doing banking' (ToR 2) for cooperatives is not only about simpler rules. It is about deciding who is finally in charge.

• What the Committee should recommend

• The Committee should tell DFS and the Ministry of Cooperation to draw one clear line: RBI handles banking functions, the cooperative registrar handles only the society's cooperative affairs.
• The evidence is the 2020 experience: giving RBI more powers did not end the overlap, because the state and central cooperative laws were not changed with it [9][10].

10. Where Priority Sector Credit Really Goes

• The 40% target can be met on paper while the farmer gets little
• Banks must give 40% of their lending to priority sectors such as agriculture [6].
• In 2019, RBI's Internal Working Group to Review Agricultural Credit (chaired by M.K. Jain) found that some states get farm credit far above the size of their farm economy (agricultural GDP) [11].
• The group said this suggests that loans tagged as 'agriculture' were being used for non-farm purposes [11].

• So the target is met in the books, but the money does not reach the field.

• Most small farmers are still outside bank credit

• According to the 2015-16 PSA annual return, public and private sector banks covered only 41% of small and marginal farmers [11].

• This sits uneasily with the Budget's '98% of villages covered' [3]. A bank branch in the village does not mean a loan in the farmer's hand.

• RBI has already tried a fix. The Committee should test whether it worked

• From 1 April 2021, RBI added an incentive framework that gives banks extra credit for lending in districts where priority sector lending is low [12].
• The Jain group also proposed raising the target for small and marginal farmers from 8% to 10% over two years [11].

• The Committee should ask RBI for district-level data on the 2021 framework before suggesting new targets. It should judge PSL by whether loans reach small farmers in low-credit districts, not by whether banks meet a national percentage.

• Use the Lead Bank Scheme here, because it already works at district level

• The scheme already brings banks and development agencies together in each district [5].
• It has not been reviewed since RBI's 2009 committee [5]. Fixing PSL by district therefore gives a natural reason to update the Lead Bank Scheme as well.

11. Who Writes the Rules: Finance Ministry or RBI?

• The government is the owner, the reformer and the funder, all at once
• The Committee is run by DFS, Ministry of Finance, and its Member Secretary is from DFS [1].
• The same government owns the public sector banks and put in fresh capital when they were short [13].

• Yet the banking regulator under the Banking Regulation Act is RBI. The 2020 amendment gave RBI, not the ministry, the new powers over cooperative banks [8].

• Why this matters for the recommendations

• ToR 1 (prudential norms, the safety rules on how much capital banks must hold) and ToR 5 (cyber-risk safeguards) are areas where RBI writes the rules.

• If an owner-led committee designs them, RBI may later have to adopt, change or reject them. That slows things down and can blur who is responsible if a bank fails.

• What the Committee should do

• The Committee should split its report into two parts: (a) changes to laws and government policy, which DFS and Parliament can act on, and (b) suggestions for RBI, which RBI is free to accept or reject.
• The six-month tenure [1] makes this split even more useful. Law changes can move quickly through Parliament, while RBI changes its rules through its own consultation process.

12. Anchors for Answers

• Data: Only 41% of small and marginal farmers were covered by public and private sector bank credit (PSA annual return, 2015-16) [11]
• Data: Urban cooperative bank gross NPA ratio was 6.0% at end-March 2015, up from 5.7% [7]
• Data: Rs 2.11 lakh crore PSB recapitalisation package announced in October 2017 [13]
• Data: Banking coverage in more than 98% of villages (Budget 2026-27) [3]
• Report/Committee: RBI Internal Working Group to Review Agricultural Credit (M.K. Jain), 2019: found farm credit being diverted to non-farm uses and proposed raising the small/marginal farmer target to 10% [11]
• Report/Committee: Nariman Committee, 1969 (area approach, which led to the Lead Bank Scheme); RBI High Level Committee on the Lead Bank Scheme, 2009 [5]
• Law/Case: Banking Regulation (Amendment) Act, 2020: extended RBI powers over cooperative banks, but RBI must still consult the state government before removing boards of state-registered banks [8]
• Scheme: PSL incentive framework for low-credit districts (from 1 April 2021): the existing tool the Committee should evaluate under ToR 6 [12]

13. Mains Relevance

• GS-III: Indian economy and issues of mobilisation of resources, growth and development; inclusive growth; investment models; banking sector reforms. Science & technology / Security: cyber security in critical financial infrastructure.
• GS-II: Government policies and interventions; statutory, regulatory and quasi-judicial bodies (the RBI–Government regulatory interface).
• Model questions: 1. "With Indian banks showing record profitability and improved asset quality, the time is ripe for second-generation banking reforms." Discuss in the context of the High Level Committee on Banking for Viksit Bharat. (15 marks) 2. Critically examine whether Priority Sector Lending and the Lead Bank Scheme are still relevant in an era of near-universal banking access and digital credit. (10 marks) 3. Long-term capital availability and the high cost of capital constrain private investment in India. Suggest institutional reforms involving banks, DFIs and NBFCs. (15 marks)

14. Related Topics to Study Next

• Earlier banking-reform committees (e.g., the Narasimham Committees): useful for comparing ToRs. Not covered in the sources above, so verify the details independently.
• Basel III and RBI prudential norms: ToR 1 is about adapting global prudential practice.
• The 2009 RBI review of the Lead Bank Scheme: the predecessor review of a scheme now being re-examined [5].
• Priority Sector Lending framework, PSLCs and RIDF: directly in the ToR [6].
• NaBFID and DFIs: central to the long-term capital ToR.
• RRB amalgamation and cooperative bank regulation: named in the ToR [1].
• PFC–REC restructuring: a companion Budget 2026-27 measure [3].
• Cyber security and AI in finance: the digital roadmap ToR.

15. NCERT Concepts to Revise

• Priority sector lending (Economy): PSL and its 40% target are a core term of reference and are reviewed in the note.
• Urban cooperative bank (Economy): Explains RBI's widened powers under the 2020 amendment and the dual-control problem in cooperative bank regulation.
• Bank recapitalisation (Economy): Today's strong bank balance sheets followed the Rs 2.11 lakh crore government recapitalisation of 2017.
• Basel III (Economy): ToR 1 asks to adapt global prudential norms, which are Basel-type capital standards, to India.
• Financial inclusion (Economy): The Committee must protect inclusion, and the note debates village coverage versus actual credit reaching people.
• Non-Performing Asset (Economy): Asset quality and bad loans explain the recapitalisation and the weaker record of cooperative banks.

16. Common Errors / Trap Areas

• Constituted by the Ministry of Finance, not RBI. The Member Secretary is from DFS [1]. The 2009 Lead Bank Scheme review was a separate RBI High Level Committee [5].
• Announcement vs constitution dates. It was announced on 1 Feb 2026 (Budget) and notified on 30 Oct 2026 [1][3].
• Tenure is six months, not one year [1].
• DFIs vs NBFCs vs Banks are separate categories, even though all three fall under the capital ToR [1].
• Lead Bank Scheme origin: it followed the Nariman Committee (1969), launched by RBI in Dec 1969 [5].
• PSL target: 40% applies to domestic SCBs and to foreign banks with ≥20 branches, and is measured on ANBC or CEOBE, whichever is higher [6].