Corporate Banking Governance Bill likely in Budget 2026 session to strengthen PSBs

The Ministry of Finance is working on a Corporate Banking Governance Bill that is likely to be introduced during the upcoming Budget session of Parliament, with a focus on strengthening the role and functioning of public sector banks (PSBs) in India, officials said.

According to sources, the proposed legislation aims to improve ease of doing business through PSBs and bring changes to their board structure to enhance corporate governance and operational efficiency. The bill is expected to align public sector banks more closely with private sector best practices while reinforcing their role in meeting the country’s growing credit needs.

Officials indicated that the bill could incorporate an enhanced version of the EASE (Enhanced Access and Service Excellence) norms for PSBs. Under these measures, banks are expected to focus on improving efficiency through the adoption of modern technology, enabling faster and more streamlined services. Digital lending initiatives such as “Credit@click” have already enabled end-to-end digitalisation of lending processes, and the proposed framework may further institutionalise such practices.

The EASE framework also emphasises financial inclusion by expanding access to credit and banking services, along with employee development initiatives aimed at strengthening internal capabilities across PSBs, sources said.

A key component of the proposed bill could be changes to the board structure of public sector banks. These changes are intended to improve corporate governance standards, enhance decision-making efficiency, and bring PSBs closer in line with governance models followed by private sector lenders.

In addition, the government is considering increasing the foreign direct investment (FDI) limit in public sector banks to 49% from the current 20%, while retaining a minimum government stake of 51%. Business Today TV had earlier reported that inter-ministerial consultations on this proposal have been concluded, and a Cabinet note is expected to be floated by the Finance Ministry shortly, potentially within the current financial year.

The move to raise the FDI cap is being driven by the need to make PSBs more globally competitive, strengthen governance standards, and enhance operational resilience at a time when credit demand is rising across the economy. Policymakers also believe that higher foreign participation could help improve the market valuations of state-run lenders, which continue to trade at a discount to private sector peers despite improvements in asset quality and balance sheets.

While the proposed changes may not be explicitly mentioned in the Union Budget speech, sources said the Corporate Banking Governance Bill could be introduced during the Budget session.

The first phase of the Budget session will be held from January 28 to February 13, followed by the second phase from March 9 to April 2.