The case for widening banking committee mandate

While India’s financial sector is driven by banking, this may not hold in the decades to come

- RAGHU MOHAN

(ILLUSTRATION: BINAY SINHA)

‘The proposal in the Union Budget FY27 to set up a high-level committee to review and recommend reforms for the banking sector, in line with the vision of Viksit Bharat 2047, is expected to be far-reaching in its scope. It follows a key Mint Road initiative taken last year to set up a regulatory review cell (RRC) housed in its Department of Regulation effective October 1, 2025. Its mandate is to subject regulations to a comprehensive and systematic internal review every 5-7 years.

The committee has the potential to be the equivalent of the first M Narasimham Committee of our times — if it is not restricted to the banking turf that is. The first Narasimham committee, set up by Manmohan Singh as finance minister in August 1991, had a broad mandate — nothing less than the committee on the financial system — and its commonly held association with pureplay banking is because Narasimham was a former Reserve Bank of India (RBI) governor.

The second committee headed by him in December 1997, when P Chidambaram was finance minister, had a narrower footprint as the committee on banking sector reforms. The sequencing is important.

‘The financial sector has changed beyond recognition since the two Narasimham committees. Nearly all RBI regulated entities (REs) have business lines that cut across financial regulators: Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority (Irdai), and Pension Fund Regulatory and Development Authority (PFRDA).

R Gandhi, former deputy governor of RBI, said, “Let us wait for the terms of reference of the committee (proposed in the Budget). It is possible that while it is called a committee on banking reforms, its footprint may be wider.”