High-Level Committee on Banking Reforms

marks an important policy signal from the Government of India, reflecting a clear recognition that India’s banking system must evolve decisively to support the country’s next phase of economic growth.

Announced by Finance Minister Nirmala Sitharaman during the Union Budget 2026–27 speech, the committee is expected to review the structural, operational, and regulatory dimensions of India’s banking sector. While the finance minister did not outline the detailed mandate, she emphasised that the panel would align banking reforms with India’s long-term ambition of becoming a developed economy by 2047.

This announcement comes at a time when India’s banking system is under visible strain—not from asset quality stress as in the past, but from deeper structural issues related to liquidity, governance, incentives, and customer trust.

High-Level Committee on Banking Reforms and India’s Growth Vision

The health of the banking sector mirrors the health of the economy. For a country aspiring to sustained high growth, financial intermediation must be efficient, stable, and trustworthy. The formation of the High-Level Committee on Banking Reforms acknowledges that incremental tweaks are no longer enough.

India’s banking ecosystem today faces a mismatch between national ambitions and institutional preparedness. Credit demand is expanding rapidly, financial inclusion is deeper than ever, and digital finance has transformed access. Yet, foundational issues in funding structures, governance, and service delivery continue to limit the sector’s resilience.

The committee’s real test will lie not in headline reforms such as new licences or mergers, but in addressing the less visible yet more consequential fault lines.

Liquidity and Liability Management: The Core Issue Before the Committee

One of the most pressing concerns that the High-Level Committee on Banking Reforms must address is strategic liability management.

Indian banks are witnessing a steady shift of household savings away from traditional deposits towards alternate asset classes such as mutual funds, equities, and small savings schemes. While this reflects financial maturity among savers, it poses a structural challenge for banks.

The sector’s credit–deposit ratio has crossed 81%, ringing alarm bells across policy and regulatory circles. Incremental credit growth is outpacing incremental deposit mobilisation, forcing banks to rely on costlier sources of funds such as bonds and commercial paper.

Why this matters

• Higher cost of funds compresses bank margins
• Increased reliance on market borrowings raises systemic risk
• Sustainability of credit expansion comes under question

The High-Level Committee on Banking Reforms must therefore focus on rethinking the liability side of banking, rather than merely pushing credit growth targets.

Why New Bank Licences Can Wait

Finance ministry sources have indicated that the committee may revisit bank licensing norms, including the sensitive question of allowing corporate houses to own banks.

At the current juncture, this approach warrants caution.

India is navigating a volatile global environment marked by geopolitical tensions, shifting trade alignments, and financial market uncertainty. Introducing new corporate-backed banks could intensify competition for deposits, worsening the already tight liquidity scenario.

Rather than deepening credit delivery, such moves may:

• Push up system-wide cost of funds
• Squeeze profitability across banks
• Increase risk-taking to preserve margins

The High-Level Committee on Banking Reforms should therefore assess whether the economy genuinely lacks credit delivery platforms—or whether broader growth impulses are required to organically expand credit demand.

PSB Mergers 2.0: A Questionable Priority

Another issue reportedly under consideration is a fresh round of mergers among public sector banks (PSBs).

While past consolidations aimed to create scale and efficiency, the logic of PSB Mergers 2.0 appears contradictory when viewed alongside the argument for more banks to widen credit reach.

Fewer banks with larger balance sheets do not automatically translate into better credit penetration. In many regions, especially for MSMEs and retail borrowers, access constraints stem from risk aversion and process rigidity—not from lack of banking entities.

The High-Level Committee on Banking Reforms should carefully evaluate whether further consolidation enhances resilience or merely concentrates risk.

Governance and Human Capital Gaps in Banking

A widening governance gap between public and private sector banks is another structural concern.

Many PSBs continue to operate under:

• Rigid human resource policies
• Outdated hiring and training frameworks
• Limited performance-linked incentives

At the same time, private sector banks face their own governance challenges, particularly in aligning aggressive growth targets with long-term stability.

The committee must look beyond balance sheets and address institutional capability, including leadership development, skill retention, and accountability mechanisms.

Customer Grievances: The Trust Deficit Banks Cannot Ignore

Perhaps the most underappreciated yet critical issue before the High-Level Committee on Banking Reforms is customer grievance redressal.

Poor service quality, mis-selling, and weak grievance mechanisms have eroded trust across both public and private sector banks. In fact, private banks—despite their technology advantage—often attract a higher volume of customer complaints.

Root causes include

• Incentive structures that reward aggressive cross-selling
• Pressure on frontline staff to meet unrealistic targets
• Weak internal controls on third-party product distribution

Customer-facing officers are frequently incentivised to sell insurance and mutual fund products with high commissions, while safeguards against mis-selling remain inadequate. Similarly, excessive targets for credit cards and unsecured retail loans elevate default risks.

Regulatory Perspective on Grievance Redressal

The importance of grievance redressal has been highlighted by RBI leadership as a key pillar of financial stability.

Sanjay Malhotra has previously emphasised that unresolved customer grievances are not merely service issues—they are indicators of deeper governance failures.

From a regulatory standpoint, weak grievance mechanisms can:

• Undermine depositor confidence
• Increase conduct risk
• Trigger reputational and systemic fallout

The High-Level Committee on Banking Reforms must therefore integrate customer protection firmly into the reform agenda, linking it directly to resource mobilisation and balance sheet stability.

What the High-Level Committee on Banking Reforms Should Prioritise

High-Level Committee on Banking Reforms and the Road Ahead

India’s banking system has supported economic expansion through multiple cycles, but the next phase of growth demands a more nuanced approach. The challenges today are not about capital adequacy or headline NPAs alone—they lie in funding structures, incentives, governance, and trust.

The High-Level Committee on Banking Reforms represents an opportunity to reset priorities, away from headline-grabbing reforms and towards foundational stability. If the panel focuses on liquidity resilience, customer protection, and institutional capability, it can help ensure that India’s banking sector remains a reliable engine of growth rather than a source of vulnerability.

In a rapidly evolving financial landscape, the cost of getting these reforms wrong would be far higher than the discomfort of confronting hard truths today.

Why Liability Strategy Matters More Than Credit Targets

For several years, policy conversations around banking reforms have been dominated by credit growth numbers. However, the High-Level Committee on Banking Reforms must recognise that aggressive lending without a stable liability base is neither prudent nor sustainable.

Indian banks today are operating in an environment where:

• Deposits are price-sensitive
• Savers are increasingly return-conscious
• Liquidity shocks can transmit faster due to market-linked funding

Without a clear, long-term liability strategy, banks risk entering a cycle where short-term funding supports long-term lending—an imbalance that history has shown to be dangerous.

The committee should therefore examine:

• Whether deposit tenures and pricing reflect asset maturities
• How banks can deepen stable retail deposits without overpaying
• The role of differentiated savings products linked to long-term goals

This discussion is far more consequential for financial stability than announcing new lending schemes or credit expansion targets.

High-Level Committee on Banking Reforms and Deposit Migration Trends

A critical reality confronting Indian banks is the structural migration of household savings.

Over the past few years, households have steadily increased allocations to:

• Mutual funds
• Equity markets
• Small savings and government-backed instruments

While this diversification strengthens household balance sheets, it reduces the pool of low-cost deposits available to banks. Incremental deposit growth is increasingly insufficient to fund incremental credit growth.

The High-Level Committee on Banking Reforms must study whether current deposit products are aligned with the evolving preferences of Indian savers, especially younger and urban households who prioritise flexibility, transparency, and returns.

Cost of Funds: The Silent Pressure on Bank Balance Sheets

As deposit growth struggles, banks have increasingly turned to:

• Bonds
• Commercial paper
• Market-linked borrowings

While these instruments provide temporary relief, they come at a higher cost and introduce refinancing risks. Over time, this raises lending rates, dampens credit demand, and narrows margins.

From a systemic perspective, higher funding costs can:

• Discourage productive lending
• Push banks towards riskier assets to protect profitability
• Amplify stress during market volatility

The High-Level Committee on Banking Reforms must therefore assess how funding structures affect long-term credit affordability and financial stability.

Incentives, Mis-Selling, and the Erosion of Customer Trust

Another area demanding urgent attention is the misalignment of incentives within banks.

Customer-facing staff are often evaluated on short-term revenue metrics rather than quality of service or portfolio health. This has encouraged:

• Aggressive selling of third-party insurance products
• Bundling of financial products without adequate disclosure
• Overextension of unsecured retail credit

Such practices may boost fee income in the short run, but they weaken customer trust and increase default risks.

The High-Level Committee on Banking Reforms should examine whether incentive frameworks adequately balance profitability with customer protection and long-term asset quality.

Why Grievance Redressal Is a Balance Sheet Issue

Customer grievance redressal is often treated as a compliance or service function. In reality, it has direct implications for a bank’s funding strength.

When customers feel unheard or misled:

• Deposit stickiness declines
• Churn increases
• Reputation risk escalates

Over time, this weakens the very foundation on which banks mobilise resources for lending.

The High-Level Committee on Banking Reforms must evaluate whether existing grievance mechanisms are:

• Independent
• Time-bound
• Empowered to enforce corrective action

Without this, banks risk losing depositor confidence at a time when competition for liabilities is already intense.

Public vs Private Banks: Different Problems, Same Outcome

While public and private sector banks face different operational challenges, the outcome—customer dissatisfaction—is increasingly similar.

The High-Level Committee on Banking Reforms should avoid a one-size-fits-all approach and instead recommend differentiated solutions based on institutional realities.

What Should Clearly Be Deferred

Not every reform needs urgency. Some proposals may be better revisited once foundational issues are addressed.

These include:

• Corporate entry into banking
• Large-scale PSB mergers
• Rapid expansion of banking licences

Pursuing these reforms without stabilising liquidity and governance could create avoidable risks.

High-Level Committee on Banking Reforms as a Course-Correction Tool

At its core, the High-Level Committee on Banking Reforms is not about expanding the banking system—it is about strengthening it from within.

India does not suffer from a shortage of banks or credit channels. What it needs is:

• Better alignment between savings and lending
• Stronger internal controls
• Customer-centric service models

If the committee succeeds in reorienting policy focus towards these fundamentals, it can meaningfully contribute to India’s long-term financial resilience and growth trajectory.

The choices it makes now will shape not just balance sheets, but public confidence in the banking system for years to come.

FAQs on the High-Level Committee on Banking Reforms

 1. What is the High-Level Committee on Banking Reforms?

The High-Level Committee on Banking Reforms is a panel proposed by the Government of India during the Union Budget 2026–27 to comprehensively examine the Indian banking sector and recommend structural, regulatory, and strategic reforms to align the industry with India’s growth objectives for the coming years.

 2. Why has the High-Level Committee on Banking Reforms been formed now?

The committee has been constituted to review the current state of the banking system, especially at a time when the sector’s balance sheets, asset quality, and financial inclusion levels have improved, and to identify reforms that support medium- and long-term economic goals.

 3. What will be the scope of the High-Level Committee on Banking Reforms?

Though detailed terms of reference are yet to be released, the committee is expected to study structural issues in banking, including ownership norms, consolidation and merger strategies, governance frameworks, financial stability, credit delivery efficiency, and customer protection mechanisms.

 4. Will the committee consider new bank licences and corporate entry into banking?

Yes. One of the subjects under consideration for the committee is whether India needs more banks, better-run banks, or larger banks — which includes reviewing bank licensing norms and the potential entry of corporate houses into banking.

 5. Will the High-Level Committee on Banking Reforms look at mergers of public sector banks (PSBs)?

The committee is expected to evaluate the need for further consolidation among PSBs. This may include examining whether mergers create stronger, more efficient banking entities or concentrate risk without expanding credit delivery.

 6. How will the committee impact financial inclusion and consumer protection?

Protecting financial stability, promoting inclusion, and strengthening consumer protections are explicitly mentioned as part of the committee’s mandate. Its recommendations may cover grievance redressal frameworks and measures to enhance customer trust in banks.

 7. Is the committee only limited to large commercial banks?

No. Government statements indicate the review will be comprehensive, potentially covering cooperative banks, regional rural banks, and other segments of the banking ecosystem, as part of aligning the sector with India’s development goals.

 8. When will the recommendations of the High-Level Committee on Banking Reforms be announced?

As of now, the government has announced the setting up of the committee, but it has not specified a timeline for its report or recommendations. Final details including deadlines will be available once the committee formally begins its work and announces terms of reference.

 9. How might the committee influence bank governance and oversight?

Past expert committees on banking (such as Narasimham, Raghuram Rajan, and others) have shown that expert panels influence how banks govern themselves and respond to systemic challenges. Likewise, this High-Level Committee is expected to recommend governance reforms that improve accountability, risk management, and institutional capacity in both public and private banks.

 10. Will the committee address customer grievance mechanisms?

Yes. Reliable grievance redressal and customer-centric service mechanisms are part of consumer protection priorities. The committee’s policy review is likely to cover how banks can improve complaint resolution and reduce service-related friction.

11. How does the High-Level Committee on Banking Reforms differ from past banking reform committees?

Unlike earlier committees that focused on asset quality stress or capital adequacy, the High-Level Committee on Banking Reforms is expected to take a forward-looking view. Its emphasis is likely to be on liquidity sustainability, governance standards, customer protection, and alignment of banking with India’s long-term growth vision rather than crisis resolution.

 12. Will the High-Level Committee on Banking Reforms impact NBFCs and fintech lenders?

While the committee is centred on banks, its recommendations may indirectly affect NBFCs and fintech lenders. Changes in banks’ liability strategies, cost of funds, and credit appetite often influence co-lending models, refinancing availability, and competitive dynamics across the broader financial system.

 13. Is the High-Level Committee on Banking Reforms linked to RBI supervision?

The committee is a government-appointed body, but its work will naturally intersect with the regulatory philosophy of the Reserve Bank of India. Any major reform proposals will need to align with RBI’s prudential norms, supervisory framework, and financial stability objectives.

 14. How could the committee’s work affect depositors?

If the committee prioritises liability management and customer trust, depositors may benefit from more transparent deposit products, improved service standards, and stronger grievance redressal mechanisms. Over time, this could enhance confidence in banks as long-term custodians of household savings.

 15. Will interest rates on deposits and loans be influenced by the committee’s recommendations?

Direct changes to interest rates are not within the committee’s mandate. However, reforms that improve deposit mobilisation and reduce banks’ dependence on costly market borrowings could moderate funding costs, indirectly influencing lending and deposit rate trends.

 16. Does the High-Level Committee on Banking Reforms address mis-selling of financial products?

Mis-selling is closely linked to incentive structures and customer grievances. The committee is expected to examine whether existing sales-driven models in banks adequately protect customers, particularly in the distribution of insurance, mutual funds, and unsecured retail credit.

 17. How important is customer grievance redressal in the committee’s agenda?

Customer grievance redressal is likely to be a central theme. Weak complaint-handling systems are no longer seen as mere service lapses but as indicators of governance and conduct risk. Strengthening grievance mechanisms can directly support deposit stability and institutional credibility.

 18. Will public sector banks and private banks be treated differently by the committee?

The High-Level Committee on Banking Reforms is expected to recognise that public and private banks face different structural constraints. Recommendations may therefore be differentiated, addressing governance rigidity in PSBs and aggressive incentive-driven practices in private banks separately.

 19. Can the committee’s recommendations lead to immediate policy changes?

Typically, such committees submit reports that guide medium-term policy decisions rather than trigger instant regulatory changes. Implementation usually depends on government acceptance, regulatory alignment, and phased execution to avoid market disruption.

 20. Why is this committee significant for India’s goal of becoming a developed economy by 2047?

A stable, trusted, and well-funded banking system is essential for long-term growth. By focusing on foundational issues such as liquidity resilience, governance quality, and customer trust, the High-Level Committee on Banking Reforms can help ensure that India’s financial system supports sustainable development rather than becoming a source of systemic risk.

 21. How can the High-Level Committee on Banking Reforms influence MSME credit availability?

If the committee strengthens banks’ liability management and funding stability, it can indirectly improve the flow of affordable credit to MSMEs. Stable deposits and lower funding costs allow banks to lend with longer tenures and better pricing, which is critical for small and medium enterprises that depend on predictable cash flows.

 22. Will digital banking and technology adoption be reviewed by the committee?

Technology is expected to be an enabling theme rather than the core focus. The committee may assess whether digital channels are being used responsibly to enhance service quality, reduce operational risk, and improve grievance redressal—rather than merely accelerating sales or credit disbursement.

 23. Can the committee recommend changes to banks’ sales and incentive frameworks?

Yes. One of the underlying issues highlighted in recent years is the misalignment between employee incentives and customer outcomes. The committee may recommend restructuring incentive systems so that customer satisfaction, portfolio quality, and ethical conduct receive greater weight.

 24. How does the committee’s work relate to financial stability?

Financial stability is closely linked to liquidity discipline, governance quality, and customer trust. By addressing these fundamentals, the High-Level Committee on Banking Reforms can help reduce the risk of sudden stress episodes triggered by deposit flight, reputational damage, or excessive risk-taking.

 25. Will cooperative banks and regional rural banks come under the committee’s review?

While the primary focus is likely on scheduled commercial banks, a holistic review of the banking ecosystem may include cooperative banks and regional rural banks, especially where governance, supervision, and customer protection concerns overlap with those of larger institutions.

 26. How important is depositor confidence in the committee’s recommendations?

Depositor confidence is central to banking stability. Weak service standards, unresolved complaints, or opaque product structures can quickly erode trust. Strengthening grievance redressal and transparency can therefore be as impactful as capital or liquidity measures.

 27. Will the committee address the rising use of unsecured retail loans?

The rapid growth of unsecured retail credit has raised concerns about default risk and consumer over-indebtedness. The committee may examine whether lending practices and internal controls adequately balance growth objectives with borrower protection and long-term asset quality.

 28. Can the committee’s recommendations affect banks’ profitability?

In the short term, stricter controls and revised incentive structures may moderate fee income. However, over the long term, better liability management and stronger customer trust can support more stable profitability and reduce volatility in earnings.

 29. How does the High-Level Committee on Banking Reforms matter for investors?

For investors, the committee’s work signals the policy direction for the banking sector. Clear emphasis on stability, governance, and sustainable growth can improve valuation confidence, while abrupt or poorly sequenced reforms could increase uncertainty.

 30. What should stakeholders realistically expect from this committee?

Stakeholders should not expect immediate or dramatic changes. The real value of the High-Level Committee on Banking Reforms lies in setting the reform agenda—prioritising foundational issues that strengthen the banking system over time and reduce the likelihood of future disruptions.

 31. Will the High-Level Committee on Banking Reforms recommend changes to deposit insurance or depositor safeguards?

While deposit insurance is a separate policy domain, the committee may examine whether existing depositor safeguards are adequate in the context of rising competition for deposits and increasing use of market borrowings. Any recommendations are likely to focus on strengthening confidence rather than altering coverage limits.

 32. How could the committee’s work affect credit growth in the short term?

In the short term, a sharper focus on liability discipline and risk management may moderate aggressive credit expansion. However, this recalibration can help prevent asset-quality deterioration and ensure that credit growth remains sustainable rather than cyclical.

 33. Will the committee examine banks’ exposure to market volatility?

Yes. With banks increasingly tapping bond markets and commercial paper, sensitivity to market conditions has risen. The committee may assess whether current risk management practices adequately address refinancing and interest-rate risks.

 34. Can the committee influence how banks price loans and deposits?

The committee will not set prices, but its recommendations on funding structures and deposit mobilisation could influence how banks approach pricing. Better-aligned liabilities can reduce pressure to reprice loans frequently or pass on volatility to borrowers.

 35. How relevant is this committee for retail borrowers?

For retail borrowers, the committee’s emphasis on responsible lending, grievance redressal, and fair sales practices can translate into clearer disclosures, fewer instances of mis-selling, and more predictable borrowing terms over time.

 36. Will the High-Level Committee on Banking Reforms address governance accountability?

Governance accountability is expected to be a key theme. This may include clearer roles for boards, stronger oversight of management decisions, and mechanisms to ensure that growth strategies do not compromise long-term stability.

 37. How does the committee’s agenda align with India’s financial inclusion goals?

Financial inclusion is not just about access but also about trust and usability. By focusing on service quality and grievance resolution, the committee can strengthen inclusion outcomes and ensure that newly banked customers remain engaged with formal finance.

 38. Could the committee recommend changes in regulatory coordination?

While regulatory structures are well-defined, the committee may suggest improved coordination between policymakers and regulators to ensure that reforms are sequenced smoothly and do not create unintended market disruptions.

 39. What role does public confidence play in the committee’s success?

Public confidence is central. Even technically sound reforms can fail if customers and depositors perceive instability or unfair treatment. The committee’s ability to reinforce trust will be a key measure of its effectiveness.

 40. Why is the High-Level Committee on Banking Reforms being closely watched by the financial sector?

The committee’s work will shape the direction of banking reforms for years to come. Its recommendations are expected to influence policy priorities, regulatory focus, and institutional behaviour, making it a critical reference point for banks, regulators, and market participants alike.

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