Financial Services Secretary M Nagaraju announced on Friday that the High-Level Committee on Banking for Viksit Bharat will examine public sector banks' balance sheet constraints to enable better capital utilization. According to reports from The Economic Times, The Times of India, and PTI, the committee, announced in this year's Budget, is expected to review the banking sector with a focus on making it more effective, inclusive, and better aligned with India's growth needs while maintaining financial stability. Finance Minister Nirmala Sitharaman had proposed setting up this committee in her Budget speech on February 1, 2026, stating it would comprehensively review the sector and align it with India's next phase of growth. As reported by PTI, Nagaraju emphasized at the ICPP Growth Conference that the committee will examine intermediation cost, balance sheet constraints in banks and areas where regulators and institutions can improve the flow of credit. The government is expected to announce the terms of reference for the panel soon.
Addressing the corporate bond market challenges, Nagaraju highlighted that 90-95% of bond issuances in India are from companies rated AA or above, while in the US, the bulk of the market consists of A and BBB rated companies. As reported by The Economic Times, The Times of India, and PTI, he emphasized that the middle tier of the bond market doesn't exist in India, making it difficult for companies to raise funds in long-duration tenors. The secretary noted that long-term institutional investors' ability to participate more actively in the corporate bond market will be crucial for determining how deep and liquid that market can become. He stressed the urgent need to deepen India's corporate bond market, stating that companies that are not top rated also need access to capital, with long-term capital borrowers must tap the corporate bond market for funds. A well-functioning bond market provides companies direct access to long-term capital, improves price discovery, and creates competition that keeps borrower costs honest across the system.
Nagaraju stressed the need for better regulation and coordinated action across regulators and government institutions. According to The Economic Times, The Times of India, and PTI, he warned that financial markets need stronger oversight and emphasized the importance of better-designed regulation, citing India's experience with cooperative banks, non-banking financial companies, and parts of the microfinance sector. The secretary noted that the bond, currency, and derivatives markets need to work together effectively, with the supply side requiring better secondary market liquidity, lower transaction friction, and greater coherence in how similar instruments are treated across different regulatory frameworks. He emphasized that financial sector regulators, the government, and the high-level committee would need to consider these linkages with the wider banking system, with the demand side requiring expansion to deepen the bond market.
Highlighting the importance of inclusive finance, Nagaraju stressed that capital should reach last-mile borrowers at competitive rates. As reported by The Economic Times, The Times of India, and PTI, he emphasized that if capital reaches only the most credit-worthy borrowers, the financial system is functioning at a basic level, but efficient systems also serve viable, underserved borrowers. The secretary noted that when the cost of borrowing exceeds underlying risk requirements, viable projects simply don't happen, with this impact most sharply felt by smaller businesses, first-generation entrepreneurs, and rural borrowers. He stressed that the question is not just whether capital is available, but whether it is affordable for farmers needing crop finance, small businesses wanting to expand, or infrastructure projects requiring long-term financing. The secretary emphasized that it is important that the financial system efficiently mobilises private savings towards productive use, with the system working efficiently when it reaches those who are viable, but currently underserved.
Nagaraju emphasized that beyond market structure, the cost of capital reflects broader economic fundamentals including fiscal management stability, monetary environment confidence, and policy consistency. According to The Economic Times, The Times of India, and PTI, he noted that deepening the bond market requires coordinated action across regulators and government, with the demand side needing to expand. A well-functioning bond market provides companies direct access to long-term capital, improves price discovery, and creates competition that keeps borrower costs honest across the system. He stressed that stronger oversight remains essential, citing India's experience with cooperative banks, non-banking financial companies, and parts of the microfinance sector to demonstrate what can go wrong without proper regulation. The secretary warned that financial markets need stronger oversight and need "better regulation, not less regulation," arguing for better-designed regulation rather than less regulation.
