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Informist, Friday, May 1, 2026

NEW DELHI – The proposed "high level committee on banking for Viksit Bharat" will look into public sector banks' balance sheet constraints, so that they can leverage their capital, Department of Financial Services Secretary M. Nagaraju said Friday. "This committee is expected to review the banking sector with a focus on making it more effective, more inclusive, and better aligned with India's growth needs, while maintaining financial stability," he said at Isaac Centre of Public Policy's event.

In the Budget for 2026-27 (Apr-Mar), the government proposed setting up a high-level committee on banking to comprehensively review the banking sector and align it with the country's growth goals while safeguarding financial stability, inclusion, and consumer protection. Nagaraju said companies face difficulty in raising funds in long-duration tenors and long-term capital borrowers must tap the corporate bond market for funds.

"The ability of long-term institutional investors to participate more actively in the corporate bond market will be an important factor in determining how deep and liquid that market can become. The supply side needs to develop better secondary market liquidity, lower transaction friction, and greater coherence in how similar instruments are treated across different regulatory frameworks. The bond, the currency, and the derivatives markets need to work together effectively," Nagaraju said.

He said the relevant financial sector regulators, the government and the high-level committee on banking will have to consider the interlinkages with the banking sector at large. "Beyond the market structure itself, the cost of capital ultimately reflects broader economic fundamentals. The quality of fiscal management, the stability of the monetary environment, and the confidence of the investor, that policy will be consistent and predictable," he said.

Nagaraju highlighted that a well-functioning bond market gives companies a direct route to long-term capital, improves price discovery, and creates competition that keeps borrower costs honest across the system. "Deepening the bond market is not just a task for any single institution. It requires coordinated action across regulators and across the government. The demand side needs to expand," he said.

It is important that capital reaches last-mile borrowers at competitive rates, he said. "If capital reaches only the most credit-worthy borrowers, the financial system is doing its job at a basic level. If it also reaches those who are viable, but currently underserved, the system is working efficiently," Nagaraju said.

He said it is important that the financial system efficiently mobilises private savings towards productive use. "The question is not just whether capital is available. It is whether capital is affordable for the farmer who needs crop finance, the small business that wants to expand, or the infrastructure project that needs long-term financing." When the cost of borrowing is higher than the underlying risk of requirements, viable projects simply do not happen, he said. This is felt most sharply by smaller businesses, first-generation entrepreneurs, and rural borrowers.

He, however, warned that financial markets need stronger oversight and need "better regulation, not less regulation. "India's own experience with the co-operative banks, non-banking financial companies, and parts of the microfinance sector shows what can go wrong without it. What I am arguing for is better designed regulation," Nagaraju said.  End

Reported by Sagar Sen and Priyasmita Dutta

Edited by Akul Nishant Akhoury

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