UPSC Prelims 2026 Q98: Financial Sector Reform Committees — Explained
With reference to different Committees in India, consider the following details:
| Sl.No. | Committee | Objective | Organization under which it was formed |
| 1 | R.N. Malhotra Committee | Comprehensive reforms of Insurance sector in India | Insurance Regulatory and Development Authority of India |
| 2 | L.C. Gupta Committee | Preparing a roadmap for the introduction of derivatives trading in India | Securities and Exchange Board of India |
| 3 | Urjit R. Patel Committee | Preparing a roadmap for reforming bank lending to the Housing sector | Reserve Bank of India |
| 4 | Y.H. Malegam Committee | Preparing a roadmap for reforms in Microfinance sector in India | Reserve Bank of India |
In which of the above rows are all the details correctly matched?
- 2 only
- 2 and 3
- 1, 3 and 4
- 2 and 4
Answer: (d) 2 and 4
Statement-wise explanation
- 1: incorrect — The objective is right but the parent body is wrong. In 1993 the Government of India set up the committee, chaired by former RBI Governor R.N. Malhotra, to recommend reforms in the insurance sector, and it reported in 1994. IRDAI did not exist then. It was formed only in 1999, under the IRDA Act, and that was one of the outcomes of this committee's own recommendations.
- 2: correct — SEBI set up a committee under Dr. L.C. Gupta in November 1996 to develop a regulatory framework for derivatives trading in India. It reported in March 1998 and recommended bringing in derivatives in phases, starting with index futures. Equity derivatives trading began in India in June 2000 on the basis of its recommendations.
- 3: incorrect — The Urjit R. Patel Committee was set up by RBI, but its subject was not housing loans. It was the Expert Committee to Revise and Strengthen the Monetary Policy Framework, appointed on 12 September 2013, and it reported in January 2014. It recommended CPI inflation as the nominal anchor with a target of 4% ± 2%. That led to flexible inflation targeting.
- 4: correct — On 15 October 2010, RBI's Central Board of Directors formed a Sub-Committee under Y.H. Malegam to study issues in the microfinance sector after the Andhra Pradesh microfinance crisis. It reported in January 2011. It recommended a separate NBFC-MFI category, margin and interest-rate caps, and limits on how many MFIs could lend to one borrower.
How to eliminate
This question mostly tests whether you remember the committees. A few anchors still help. (1) Timeline logic kills Row 1. The Malhotra Committee is the 1993–94 committee that recommended an independent insurance regulator, so it cannot have been formed under IRDAI, which came in 1999. That removes the option containing rows 1, 3 and 4. (2) The Urjit Patel Committee is famous for inflation targeting (the 4% ± 2% CPI target), not housing finance. Knowing that removes the option pairing rows 2 and 3. (3) You are left with '2 only' and '2 and 4'. Row 2 appears in three of the four options, which suggests the examiner treats it as the safe row. The deciding fact is the Malegam Sub-Committee of RBI's Central Board (2010) on microfinance. To remember: in matching tables UPSC often keeps the person and the subject right and changes only the parent body or the objective. Check each column separately.
Know more
Committees that shaped India's financial sector
After the 1991 reforms, most changes in the financial sector began with an expert committee. UPSC tests three things for each committee: who set it up, what it studied, and what changed because of it.
| Committee (year set up) | Set up by | Subject | Key outcome |
|---|---|---|---|
| R.N. Malhotra (1993) | Government of India | Insurance sector reform | Private and foreign (JV) entry; independent regulator, so IRDA came in 1999 |
| L.C. Gupta (1996) | SEBI | Regulatory framework for derivatives | Phased entry starting with index futures; equity derivatives trading began in June 2000 |
| Y.H. Malegam (2010) | RBI Central Board sub-committee | Microfinance, after the Andhra Pradesh crisis | NBFC-MFI category; margin and interest caps; credit bureaus |
| Urjit R. Patel (2013) | RBI | Monetary policy framework | CPI as the nominal anchor; 4% ± 2% target; led to flexible inflation targeting and the MPC |
Why the parent body matters. A committee is usually set up by whoever has power over the sector at that moment. In 1993 there was no insurance regulator. LIC and GIC were state monopolies under the Finance Ministry, so the Government had to appoint the committee. SEBI got statutory powers in 1992, so by 1996 it could commission its own derivatives study. RBI regulates NBFCs, which is why microfinance came to an RBI Board sub-committee.
Trap pattern. A committee's recommendation often became the institution named in a wrong option. The Malhotra Committee is a clear example: it asked for an independent regulator, which became IRDA. Ask yourself: did this body exist when the committee was set up?
Follow-through. The Patel Committee's framework became law through the 2016 amendment to the RBI Act, which created the six-member Monetary Policy Committee.
NCERT Concepts to Revise
- Insurance Regulatory and Development Authority of India: Row 1 names IRDAI as the parent organisation, so knowing when and how IRDAI was created is needed to judge that row.
- Derivatives: Row 2 is about a roadmap for derivatives trading. Knowing what a derivative is makes the committee's objective clear.
- Financial sector reforms: Most of the committees in the table belong to the post-1991 financial sector reforms. This sets the timeline for checking each row.
- Futures and options trading: Futures and options are the exchange-traded derivatives whose introduction Row 2 refers to.