Why India's proposed banking panel has a tough reform task

Finance Minister Nirmala Sitharaman said this week the government would appoint a high-level panel on banking reforms, following the example of the earlier Narasimham Committees. The future of banking must reflect the aspirations of India's youth, she said at a conclave of public sector banks.

Mint's editorial board, in a piece published Friday, argued that the panel's task is unenviable. Financial sector reforms since 1991 remain incomplete. The editorial noted satisfactory progress in income recognition and capital adequacy. Provisioning rules have also improved. Major areas still see past patterns.

The editorial highlighted the Centre's stake reduction in public sector banks to 33% and priority-sector lending as two areas where past patterns prevailed. A third area, freedom in recruitment and remuneration, also remained unresolved.

The editorial said the banking sector faces a fundamental tension. Services must be accessible to every Indian. At the same time, banks must compete with the world's best. Innovations should reduce costs and offer safe new products, while banks stay commercially viable. The too-big-to-fail problem means taxpayer money inevitably rescues large banks. The alternative of bank failure is too scary to contemplate.

Why the Panel Faces a Tall Order