High level committee on banking: India’s financial sector need to strengthened, that needs good banks, says FM

"There are many aspects that need to be looked at (in banking sector), said the FM.

• FM Sitharaman announces High-Level Committee to review India's banking sector
• Committee may consider mergers of state-owned banks but not immediately
• Shares of public sector banks fell after news of possible consolidation plans

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The financial sector in India needs to be strengthened, and that needs good banks, Finance Minister Nirmala Sitharaman said on Monday. She said that the government will finalize the Terms of Reference of the high level committee on banking in the coming months.

"Today we’re in a position of strength in banking. NPAs are down, while quality of assets is high," Sitharaman told reporters in a post-Budget briefing.

Her comments came on the query of the possible agenda of the "High-Level Committee on Banking for Viksit Bharat" – which was announced by the FM during her Budget speech on February 1.

“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,” FM Nirmala Sitharaman said in her speech.

"There are many aspects that need to be looked at (in banking sector)," she said, adding that the Terms of Reference will be drafted later.

Moneycontrol reported on Sunday that the announcement of the Committee sparked speculation of proposed mergers of state-owned banks. Following the announcement of the comprehensive review, shares of public sector banks took a hit. State Bank of India (SBI), Bank of India (BoI), Canara Bank, and Bank of Baroda (BoB) slipped between 2% and 7% during the special trading session on Sunday.

Sources in the government have said that merging of banks is also likely to be considered by the Committee, however, it may not be undertaken immediately.

Meanwhile, on a query on the government setting up many committees, the FM said that it reflects the government "values stakeholder views" before undertaking any policy change.

“Setting up committees doesn’t mean government has less confidence in itself, towards policy making. On the contrary, it shows that we value public consultation," she said.

On November 6, Sitharaman had said that the government is discussing with the banking regulator as well as sector representatives to develop large, world class Indian banks, and work is underway for the consolidation of the state-owned banks.

The Centre has to sit and talk with the lenders and see how they want to take this forward, said FM Sitharaman. "We are also discussing with the RBI on how they have an idea of building large banks," she added.

On December 1, Moneycontrol had reported that the government is working on an ambitious public-sector bank (PSB) consolidation blueprint that could reduce the number of state-owned lenders from 12 to just four in FY27, with State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB) and a merged Canara–Union Bank structure emerging as the likely four.