Funding Viksit Bharat: Govt to set up high-level panel to prepare banks for big-ticket growth

The government is moving to retool India’s banking system for the country’s next phase of growth, with Union Finance Minister Nirmala Sitharaman announcing that a high-level committee will soon be set up to review the sector and recommend reforms aimed at creating large, globally competitive lenders. 

In an interview with PTI Videos, Sitharaman said the proposed panel will focus squarely on preparing banks to meet the funding needs of Viksit Bharat, India’s vision of becoming a developed nation. “We want the committee to tell us what kind of things we need to do so that banking is made available for funding Viksit Bharat," she said. 

Asked whether the exercise could lead to further mergers among public sector banks, the finance minister cautioned against reducing the mandate to consolidation alone. “It is for India’s banking sector to be made big enough, big enough in the sense, made or primed to take care of Viksit Bharat funding. You have to reach Viksit Bharat destination…it needs money, it needs financing, it needs credit, it needs banking facility to reach the common man," she said. 

On the timeline, Sitharaman signalled urgency, saying, “We will do it at the earliest." 

The plan was formally unveiled in the Union Budget on February 1. In her Budget speech, Sitharaman had said, “I propose setting up a ‘High Level Committee on Banking for Viksit Bharat’ to comprehensively review the sector and align it with India’s next phase of growth, while safeguarding financial stability, inclusion and consumer protection." 

Alongside banking reforms, the Budget also flagged steps to achieve greater scale and efficiency in public sector non-banking financial companies. This includes the proposed restructuring of Power Finance Corporation (PFC) and Rural Electrification Corporation (REC). Responding to questions on whether a merger between the two is likely, Sitharaman said, “A lot of work has happened in the ministry concerned. They have come up with this expectation. Let’s see how they play it out." 

REC is a subsidiary of PFC, with both institutions playing a critical role in financing power generation, transmission and distribution projects. The relationship was cemented in March 2019, when PFC acquired a majority stake in REC by transferring Rs 14,500 crore to the government. The transaction involved the purchase of 103.94 crore shares, or a 52.63 per cent stake, at Rs 139.50 per share, following in-principle approval from the Cabinet Committee on Economic Affairs. 

Both PFC and REC are Navratna central public sector enterprises, and the acquisition was positioned as a step toward consolidating entities operating in the same space. Momentum on that front picked up last week, when the PFC board gave in-principle approval for the merger of the non-banking finance company REC Limited with itself. 

The board’s decision came after the Budget announcement, underlining the government’s broader push to create institutions with the scale and strength needed to support India’s long-term development ambitions.