The proposed High-Level Committee on Banking for Viksit Bharat, announced in the Union Budget, is intended to undertake a comprehensive review of India's banking sector and align it with the country’s long-term development goals. The committee is expected to evaluate how the banking system can support India's transition toward a ‘Viksit Bharat’ (Developed India) by strengthening financial stability, improving credit delivery, and enhancing financial inclusion. The announcement comes at a time when Indian banks are experiencing strong balance sheets, improved asset quality, and record profitability, making it an appropriate moment to examine structural reforms for the next phase of growth.

Historically, similar committees have played a transformative role in shaping India's banking sector. For instance, the Narasimham Committee (1991) laid the foundation for major reforms such as deregulation of interest rates, reduction of statutory pre-emptions like CRR and SLR, and increased competition through private sector banks. These reforms were instrumental in improving the efficiency and resilience of the banking system during the liberalisation era. In this context, the new committee is expected to examine emerging issues such as consolidation of public sector banks (PSBs), corporate entry into banking, digital banking models, and rationalisation of regulatory requirements.

From a policy perspective, the committee may also focus on ensuring that the banking system supports sustainable credit growth while maintaining strong governance and consumer protection standards. As India aims to become a $5 trillion and eventually a developed economy, the banking sector must evolve to finance large-scale infrastructure projects, support MSMEs, and integrate advanced digital technologies. Therefore, the committee’s recommendations could shape the future architecture of India's financial system for decades.

The debate on merging Public Sector Banks (PSBs) has resurfaced as policymakers seek to create stronger and globally competitive banking institutions capable of supporting India's expanding economy. Between 2017 and 2020, the government undertook a major consolidation exercise that reduced the number of PSBs from 27 to 12. The objective was to create larger banks with stronger capital bases, better risk management, and improved operational efficiency. Given India’s growing credit demand for infrastructure, manufacturing, and digital economy sectors, further consolidation is being considered as a strategy to build banks that can operate at a global scale.

Potential advantages of PSB mergers include:

• Economies of scale: Larger banks can reduce operational costs and increase efficiency.
• Stronger capital base: Merged entities may have greater capacity to fund large infrastructure and industrial projects.
• Improved risk diversification: A broader loan portfolio reduces sector-specific vulnerabilities.
• Global competitiveness: Large banks can compete with international financial institutions.

The question of allowing large corporate houses to establish banks has been one of the most debated issues in India's financial sector reforms. Proponents argue that India requires more banks to meet the rising demand for credit in a rapidly growing economy. Large corporate groups possess deep financial resources, managerial capabilities, and technological expertise, which could help expand the banking sector and improve efficiency. The RBI’s internal working group in 2020 suggested that corporate entry could be permitted with strong safeguards and regulatory oversight.

Arguments in favour include:

• Greater capital availability: Corporate groups can bring significant investment into the banking system.
• Expansion of credit: More banks could improve credit access for businesses and consumers.
• Technological innovation: Corporates may integrate advanced digital platforms and fintech solutions.
• Global precedents: In countries such as Japan and the UK, some corporate entities operate banking services.

Digital banks or neobanks are financial institutions that operate entirely through digital platforms without traditional physical branches. They rely on mobile applications, data analytics, and cloud-based infrastructure to deliver banking services efficiently. Globally, digital banks have transformed financial services by reducing costs, accelerating product innovation, and enhancing customer experience. Examples include Revolut in Europe, Nubank in Brazil, Chime in the United States, and KakaoBank in South Korea.

The introduction of digital banks in India could generate several benefits. First, digital banks operate at roughly one-third the cost of traditional banks, as they do not require large branch networks or extensive physical infrastructure. This cost advantage allows them to offer lower fees, higher interest rates on savings, and faster financial services. Second, digital banks rely heavily on data-driven lending models, which use alternative data sources and artificial intelligence to assess creditworthiness. This could improve access to credit for individuals and small businesses that lack traditional credit histories.

India already has a strong digital financial ecosystem supported by Unified Payments Interface (UPI), Aadhaar-based identity systems, and widespread smartphone penetration. Digital banks could integrate with these platforms to create financial “super-apps” that combine payments, lending, investments, and insurance services. However, regulators must also address challenges related to data privacy, cybersecurity, consumer protection, and systemic risk.

If appropriately regulated, digital banks could significantly expand financial inclusion, reduce transaction costs, and foster innovation in the Indian financial sector, supporting the country’s broader economic transformation.

Reserve requirements, particularly the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR), are key monetary policy tools used by the Reserve Bank of India (RBI) to ensure liquidity and financial stability in the banking system. CRR requires banks to maintain a certain percentage of their deposits with the RBI in cash, while SLR mandates banks to invest a portion of their deposits in government securities. Currently, for every ₹100 deposited, banks must keep about ₹3 as CRR and invest at least ₹18 in government bonds as SLR, with additional requirements under liquidity coverage norms.

While these requirements help maintain financial stability and ensure government borrowing needs are met, they also reduce the amount of funds available for lending. When banks allocate a large share of their deposits to regulatory reserves and government securities, their ability to extend credit to businesses and households becomes constrained. Given India’s growing demand for credit in sectors such as infrastructure, manufacturing, and renewable energy, policymakers are questioning whether these requirements remain appropriate in their current form.

Critics argue that excessively high reserve requirements effectively force banks to finance the government’s borrowing programme, limiting their capacity to support private sector growth. According to industry estimates, banks currently invest around one-fourth of their liabilities in government bonds. This situation could restrict credit expansion in a rapidly growing economy.

Therefore, the proposed banking reform committee may examine whether a gradual reduction or restructuring of these requirements is feasible. Any reforms, however, must balance the need for greater credit availability with the imperative of maintaining financial stability and adequate liquidity buffers in the banking system.

Global digital banking models offer important insights into how technology can reshape financial services and expand financial inclusion. Many countries have witnessed the rapid growth of digital-only banks that deliver financial services entirely through mobile platforms. These institutions leverage advanced technologies such as artificial intelligence, cloud computing, and big data analytics to design innovative financial products and reduce operational costs.

A notable example is Nubank in Brazil, which started in 2014 as a digital-first credit card provider targeting an underbanked population. By 2025, it had expanded to more than 131 million customers across Latin America. Nubank’s success lies in its simple digital interface, low-cost operations, and customer-centric products. Similarly, Revolut in Europe has grown rapidly by launching new financial products at a fast pace and building a comprehensive financial “super-app.”

Other examples include Chime in the United States, which offers fee-free banking services, and KakaoBank in South Korea, which integrates banking services with digital messaging platforms. These banks demonstrate how digital ecosystems can combine payments, savings, investments, and lending in a single application, making financial services more accessible and efficient.

For India, these global examples highlight the potential benefits of allowing regulated digital banks to operate within the financial system. Given India’s strong digital infrastructure, including UPI and Aadhaar, digital banks could play a crucial role in expanding financial inclusion, improving credit delivery, and supporting innovation. However, regulators must ensure robust safeguards for cybersecurity, consumer protection, and financial stability while adapting these global models to India’s unique economic and regulatory environment.