For this article:

2 Feb 2026·Source: The Indian Express
4 min
EconomyNEWS

Committee to Align Banks for India's Next Growth Phase

Committee formed to align banking sector with India's next phase of growth.

Committee to Align Banks for India's Next Growth Phase

Photo by Nick Sarvari

A committee has been formed to align banks with the next phase of India's growth. The Finance Minister mentioned the importance of a strong balance sheet and broad coverage for banks to support economic expansion. The committee will focus on improving the banking sector's efficiency and effectiveness in financing key sectors.

This initiative aims to ensure that banks are well-positioned to meet the growing credit demands of the economy. The specific details of the committee's composition and terms of reference are not provided in the article.

UPSC Exam Angles

1.

GS Paper 3: Economy - Banking sector reforms and challenges

2.

Connects to syllabus topics like financial inclusion, NPAs, and regulatory framework

3.

Potential question types: Statement-based, analytical questions on banking sector reforms

Visual Insights

Aligning Banks for India's Growth Phase

Mind map showing the key aspects of aligning banks for India's next growth phase, focusing on efficiency, effectiveness, and financial support.

Aligning Banks for Growth

  • ●Banking Sector Efficiency
  • ●Broad Coverage
  • ●Strong Balance Sheet
  • ●Financing Key Sectors
More Information

Background

The Indian banking sector has evolved significantly since independence. Initially dominated by public sector banks, the sector underwent liberalization in the 1990s, leading to the entry of private and foreign banks. This reform aimed to improve efficiency and competitiveness. The Narasimham Committee reports in the 1990s were instrumental in shaping these reforms, focusing on issues like asset quality, capital adequacy, and regulatory framework. One of the key challenges faced by the Indian banking sector has been the issue of Non-Performing Assets (NPAs). High levels of NPAs can erode profitability and hinder the ability of banks to lend. Various measures have been taken to address this issue, including the introduction of the Insolvency and Bankruptcy Code (IBC) 2016, which provides a framework for resolving insolvency and recovering bad loans. The SARFAESI Act is another important legislation that empowers banks to recover dues without court intervention. The Reserve Bank of India (RBI) plays a crucial role in regulating and supervising the banking sector. The RBI sets policies related to interest rates, reserve requirements, and lending norms. It also conducts regular inspections and audits to ensure the stability and soundness of banks. The RBI's role is critical in maintaining financial stability and protecting the interests of depositors. The Banking Regulation Act of 1949 provides the legal framework for the RBI's regulatory powers.

Latest Developments

In recent years, there has been a growing focus on financial inclusion and digital banking. The government has launched initiatives like Pradhan Mantri Jan Dhan Yojana (PMJDY) to promote access to banking services for all citizens. Digital payment platforms like UPI have also seen rapid growth, transforming the way people transact. These developments are driving greater efficiency and convenience in the banking sector. The COVID-19 pandemic has had a significant impact on the banking sector. The RBI has taken several measures to mitigate the impact, including reducing interest rates and providing liquidity support to banks. The pandemic has also accelerated the adoption of digital banking and contactless payments. The government has also introduced schemes like the Emergency Credit Line Guarantee Scheme (ECLGS) to provide credit to businesses affected by the pandemic. Looking ahead, the Indian banking sector is expected to continue to grow and evolve. There is a growing emphasis on sustainable finance and green banking. Banks are also investing in technology and innovation to improve their services and competitiveness. The government is likely to continue to push for reforms to strengthen the banking sector and support economic growth. The role of Fintech companies is also expected to increase in the coming years.

Frequently Asked Questions

1. Why is a committee being formed to align banks with India's growth phase?

The committee aims to improve the banking sector's efficiency and effectiveness in financing key sectors, ensuring banks are well-positioned to meet the growing credit demands of the economy and support economic expansion.

2. What is the main goal of forming a committee to align banks with India's next growth phase?

The main goal is to ensure that the banking sector is well-positioned to meet the growing credit demands of the economy and effectively finance key sectors, thereby supporting India's economic expansion.

3. How might this initiative impact the common citizen?

If the committee is successful, citizens may benefit from increased access to credit for businesses and personal needs, potentially leading to economic opportunities and improved living standards. A stronger banking sector can also lead to more stable financial system.

4. What recent developments in the Indian banking sector are relevant to this committee's formation?

Recent developments such as financial inclusion initiatives (PMJDY) and the growth of digital payment platforms (UPI) are driving greater efficiency and convenience in the banking sector. The committee will likely consider these developments when aligning banks with India's growth phase.

5. What is the role of a strong bank balance sheet in India's economic growth, as mentioned by the Finance Minister?

A strong balance sheet enables banks to lend more and absorb potential losses, fostering a stable financial environment conducive to economic growth. Banks with healthy balance sheets are better equipped to finance key sectors and support economic expansion.

6. How could the formation of this committee be framed as a question in the UPSC Prelims exam?

A possible question: 'Recently, a committee was formed with the purpose of: (a) Restructuring the agricultural sector (b) Aligning banks with India's next growth phase (c) Reforming the education system (d) Promoting renewable energy.' The correct answer would be (b).

7. What aspects of this initiative are important to consider for the UPSC Mains exam?

For the Mains exam, consider the potential impact on economic growth, the role of the banking sector in financing key sectors, and the challenges and opportunities associated with aligning banks with India's development goals. Also, consider the historical context of banking reforms in India.

8. What are the potential challenges this committee might face?

Potential challenges include balancing the need for financial stability with the need for increased lending, addressing the issue of non-performing assets (NPAs), and ensuring that all banks, including public sector banks, are aligned with the committee's recommendations.

9. What government initiatives are related to this committee's objective?

Government initiatives like Pradhan Mantri Jan Dhan Yojana (PMJDY) and the promotion of digital payment platforms like UPI are related to this committee's objective. These initiatives aim to promote financial inclusion and efficiency in the banking sector, which are essential for aligning banks with India's growth phase.

10. What are the key areas the committee is expected to focus on?

The committee is expected to focus on improving the banking sector's efficiency and effectiveness in financing key sectors, ensuring banks are well-positioned to meet the growing credit demands of the economy.

Practice Questions (MCQs)

1. Consider the following statements regarding the recent committee formed to align banks for India's next growth phase: 1. The committee's primary focus is to assess and improve the banking sector's efficiency in financing key sectors. 2. The Finance Minister highlighted the need for banks to have a weak balance sheet to support economic expansion. Which of the statements given above is/are correct?

  • A.1 only
  • B.2 only
  • C.Both 1 and 2
  • D.Neither 1 nor 2
Show Answer

Answer: A

Statement 1 is CORRECT: The committee aims to improve the banking sector's efficiency and effectiveness in financing key sectors to meet the growing credit demands of the economy. Statement 2 is INCORRECT: The Finance Minister emphasized the importance of a STRONG balance sheet, not a weak one, for banks to support economic expansion. A strong balance sheet enables banks to lend more and absorb potential losses.

2. Which of the following best describes the primary objective of the committee formed to align banks for India's next growth phase?

  • A.To reduce the number of public sector banks in India.
  • B.To improve the banking sector's efficiency and effectiveness in financing key sectors.
  • C.To promote foreign investment in the Indian banking sector.
  • D.To decrease the interest rates on loans for all sectors.
Show Answer

Answer: B

The committee's primary objective, as mentioned in the news, is to improve the banking sector's efficiency and effectiveness in financing key sectors. This alignment is crucial for supporting India's next phase of economic growth by ensuring banks can meet the growing credit demands of the economy. The other options are not mentioned in the news and are not the primary focus of the committee.

3. Which of the following committees is/are associated with banking sector reforms in India? 1. Narasimham Committee 2. Urjit Patel Committee 3. Raghuram Rajan Committee Select the correct answer using the code given below:

  • A.1 only
  • B.1 and 2 only
  • C.2 and 3 only
  • D.1, 2 and 3
Show Answer

Answer: D

All the committees mentioned are associated with banking sector reforms in India: Narasimham Committee: This committee is well-known for its recommendations on banking sector reforms, particularly in the 1990s. Urjit Patel Committee: This committee focused on monetary policy framework and reforms. Raghuram Rajan Committee: This committee addressed financial sector reforms and competitiveness.

GKSolverToday's News