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2 Feb 2026·Source: The Hindu
4 min
EconomyNEWS

Banking Sector Reforms: High-Level Committee, PFC & REC Restructuring

High-Level Committee on Banking for Viksit Bharat to enable lending differently.

Banking Sector Reforms: High-Level Committee, PFC & REC Restructuring

Photo by Luke Shaffer

The Indian banking sector is set for a major change with the Finance Minister proposing to set up a ‘High Level Committee on Banking for Viksit Bharat’ to enable the sector to lend differently. The committee will comprehensively review the financial sector and align it with India’s next phase of growth, while safeguarding financial stability, inclusion and consumer protection. The budget has proposed to restructure the Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) to achieve scale and improve efficiency in public sector NBFCs. This move would help NBFCs align with present requirements, including RE and nuclear generation, as well as transmission and storage.

Key Facts

1.

High Level Committee on Banking for Viksit Bharat to be set up

2.

PFC and REC to be restructured

UPSC Exam Angles

1.

GS Paper 3 (Economy): Banking sector reforms, NBFCs, financial inclusion

2.

Connects to syllabus topics like financial institutions, government policies, infrastructure development

3.

Potential question types: Statement-based, analytical, critical evaluation

Visual Insights

Banking Sector Reforms: High-Level Committee Impact

Illustrates the scope and objectives of the High-Level Committee on Banking for Viksit Bharat and the restructuring of PFC and REC.

Banking Sector Reforms

  • ●High-Level Committee
  • ●PFC & REC Restructuring
  • ●Financial Stability
  • ●Inclusive Growth
More Information

Background

The Indian banking sector has undergone significant reforms since the early 1990s. The initial phase focused on liberalization, deregulation, and privatization, aiming to improve efficiency and competitiveness. Key milestones included the implementation of the Narasimham Committee recommendations, which addressed issues like asset quality, capital adequacy, and prudential norms. These reforms laid the foundation for a more resilient and market-oriented banking system. Over the years, subsequent reforms have focused on strengthening regulatory frameworks and promoting financial inclusion. The introduction of the SARFAESI Act in 2002 helped banks recover non-performing assets (NPAs) more effectively. The emphasis on financial inclusion led to initiatives like the Pradhan Mantri Jan Dhan Yojana (PMJDY), which aimed to provide access to banking services for all citizens. These efforts have expanded the reach of the banking sector and promoted greater financial stability. The restructuring of public sector entities like Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) aligns with the broader goal of enhancing efficiency and scale in the financial sector. These NBFCs play a crucial role in financing infrastructure projects, particularly in the power sector. Their restructuring aims to align them with evolving requirements, including renewable energy and nuclear generation, as well as transmission and storage, supporting India's energy transition goals. The RBI Act also plays a crucial role in regulating these entities.

Latest Developments

Recent government initiatives have focused on strengthening the banking sector's resilience and promoting sustainable lending practices. The establishment of a ‘High Level Committee on Banking for Viksit Bharat’ reflects the government's commitment to aligning the financial sector with India's long-term growth objectives. This committee will comprehensively review the financial sector and recommend measures to enhance financial stability, inclusion, and consumer protection. The restructuring of PFC and REC is part of a broader strategy to optimize the performance of public sector NBFCs. This move aims to achieve economies of scale and improve efficiency, enabling these institutions to better support infrastructure development and energy transition initiatives. The government's focus on renewable energy and nuclear generation underscores the importance of these sectors in India's energy mix. The role of NITI Aayog is also crucial in providing policy inputs for these reforms. Looking ahead, the Indian banking sector is expected to play a pivotal role in financing India's economic growth. The government's target of becoming a $5 trillion economy by 2025 necessitates a robust and efficient financial system. The ongoing reforms and policy initiatives are aimed at creating a conducive environment for lending and investment, while safeguarding financial stability and promoting sustainable development. The impact of global economic trends will also be a key factor shaping the future of the Indian banking sector.

Frequently Asked Questions

1. What is the primary objective of the ‘High Level Committee on Banking for Viksit Bharat’?

The primary objective is to comprehensively review the financial sector and align it with India’s next phase of growth, while safeguarding financial stability, inclusion, and consumer protection. It aims to enable the banking sector to lend differently.

2. For UPSC Prelims, what are the key facts to remember about the restructuring of PFC and REC?

The key fact is that Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) are being restructured to achieve scale and improve efficiency in public sector NBFCs. This move aims to align NBFCs with present requirements, including RE and nuclear generation, as well as transmission and storage.

Exam Tip

Remember PFC and REC are related to the power sector.

3. Why is the restructuring of PFC and REC important for the Indian economy?

Restructuring PFC and REC is important as it aims to improve efficiency in public sector NBFCs and align them with present requirements, including renewable energy and nuclear generation, as well as transmission and storage. This can boost investments in these critical sectors.

4. What are the potential benefits and drawbacks of restructuring PFC and REC?

Potential benefits include improved efficiency, increased scale, and better alignment with current energy sector needs. Potential drawbacks could involve challenges in integrating operations and resistance to change within the organizations.

5. What is the role of Nirmala Sitharaman in the context of these banking sector reforms?

As the Finance Minister, Nirmala Sitharaman proposed the establishment of the ‘High Level Committee on Banking for Viksit Bharat’ and the restructuring of PFC and REC. She is the key personality driving these policy changes.

6. How might the restructuring of PFC and REC impact common citizens?

If the restructuring leads to more efficient financing of power projects, it could result in more reliable and affordable electricity for common citizens. It could also lead to more investment in renewable energy projects, contributing to a cleaner environment.

7. What recent developments have led to the formation of the ‘High Level Committee on Banking for Viksit Bharat’?

Recent government initiatives focused on strengthening the banking sector's resilience and promoting sustainable lending practices have led to the formation of this committee. The committee reflects the government's commitment to aligning the financial sector with India's long-term growth objectives.

8. What are the key areas the ‘High Level Committee on Banking for Viksit Bharat’ will likely focus on?

Based on available information, the committee will likely focus on financial stability, inclusion, consumer protection, and aligning the financial sector with India's long-term growth objectives. The committee will comprehensively review the financial sector and recommend changes.

9. What is the historical background to the current banking sector reforms in India?

The Indian banking sector has undergone significant reforms since the early 1990s. The initial phase focused on liberalization, deregulation, and privatization, aiming to improve efficiency and competitiveness. Key milestones included the implementation of the Narasimham Committee recommendations.

10. What reforms are still needed in the Indian banking sector, according to you?

Based on the topic, reforms are needed to enable the banking sector to lend differently, safeguard financial stability, inclusion, and consumer protection, and align the financial sector with India’s long-term growth objectives. The High Level Committee will likely address these.

Practice Questions (MCQs)

1. Consider the following statements regarding the proposed ‘High Level Committee on Banking for Viksit Bharat’: 1. The committee aims to align the financial sector with India's long-term growth objectives. 2. The committee will focus solely on promoting financial inclusion and consumer protection. 3. The committee is tasked with reviewing the financial sector comprehensively. Which of the statements given above is/are correct?

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

Answer: B

Statement 1 is CORRECT: The committee aims to align the financial sector with India's long-term growth objectives, as explicitly stated in the news summary. Statement 2 is INCORRECT: While financial inclusion and consumer protection are important, the committee's scope is broader, including financial stability. Statement 3 is CORRECT: The committee is tasked with comprehensively reviewing the financial sector to align it with India’s next phase of growth. Therefore, only statements 1 and 3 are correct.

2. In the context of the restructuring of Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), which of the following is the primary objective?

  • A.To reduce their lending activities in the power sector
  • B.To achieve scale and improve efficiency in public sector NBFCs
  • C.To privatize these entities completely
  • D.To focus solely on renewable energy projects
Show Answer

Answer: B

The primary objective of restructuring PFC and REC is to achieve scale and improve efficiency in public sector NBFCs. This is explicitly mentioned in the news summary. The restructuring aims to align these NBFCs with present requirements, including renewable energy and nuclear generation, as well as transmission and storage.

3. Which of the following Acts empowered banks and financial institutions to recover their non-performing assets (NPAs) more effectively?

  • A.Banking Regulation Act, 1949
  • B.SARFAESI Act, 2002
  • C.Companies Act, 2013
  • D.Insolvency and Bankruptcy Code, 2016
Show Answer

Answer: B

The SARFAESI Act, 2002, empowered banks and financial institutions to recover their non-performing assets (NPAs) more effectively. This act allows banks to auction properties of defaulters without intervention from the courts, thereby speeding up the recovery process.

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