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Budget 2026 to Propose Banking Governance Bill for PSU Bank Reform

The upcoming Union Budget may propose a Banking Governance Bill aimed at enabling public sector banks to independently finance major infrastructure and development projects. The legislation seeks to professionalize PSU banks, strengthen their boards, and potentially raise the foreign direct investment cap. This reform comes as the banking sector's health shows significant improvement, with bad loans at multi-decadal lows and strong capital ratios. Finance Minister Nirmala Sitharaman will present the budget, which signals a major structural shift for the banking industry.

Key Points: Banking Governance Bill in Budget 2026 for PSU Bank Reform

  • Banking Governance Bill in Budget 2026
  • Empower PSU banks for large projects
  • Raise FDI limit above 20%
  • Improve governance & talent
  • Bank asset quality at multi-decade highs
2 min read

Budget 2026 may propose Banking Governance Bill to push PSU banks fund big projects

Budget 2026 may introduce a Banking Governance Bill to empower PSU banks, raise FDI limits, and improve professionalism for big projects.

"make PSUs more professional, competitive, and technology‑driven - NDTV Profit sources"

Mumbai, Jan 30

The government may propose the introduction of the Banking Governance Bill on February 1, 2026, in the Union Budget presentation, a move aimed at enabling public sector banks finance large projects by themselves.

The draft legislation is expected to make PSUs more professional, competitive, and technology‑driven, as well as strengthen board composition and improve accountability, NDTV Profit reported, citing sources.

The government may also separately consider raising the foreign direct investment (FDI) limit in public sector banks above the current 20 per cent cap and narrowing their pay and talent gaps with private banks.

The Bill remains to be finalised and may take another three to four months before being tabled in the Parliament, the report said.

Its formal announcement in the Budget would signal the government's intention to press ahead with one of the most significant structural reforms in the banking sector in recent years.

Finance Minister Nirmala Sitharaman will present the 15th Budget of the PM Modi government on February 1. This will also be the second full Budget since the National Democratic Alliance (NDA) came to power for a third consecutive term in 2024.

Another recent report said that investors are likely to be focused on the debt metrics, deficit outcome, and scheduled borrowings for the next year's budget to align with strategic objectives.

There has been a significant improvement in the asset quality of scheduled commercial banks with a sharp decline in the percentage of bad loans and higher recoveries, according to the Economic Survey 2025-26.

It points out that the gross non-performing asset (GNPA) ratio and net NPA ratio have reached multi-decadal lows while the capital-to-risk-weighted-asset ratio (CRAR) of banks remained strong at 17.2 per cent (as of September 2025).

The recovery rate in NPAs in banks has approximately doubled from 13.2 per cent in FY18 to 26.2 per cent in FY25.

- IANS

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Reader Comments

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Priya S
Finally! The talent and pay gap with private banks is a real issue. How can we expect the best people to work in PSUs if they are paid peanuts? Raising the FDI limit could also bring in much-needed capital and global best practices. Good move.
R
Rohit P
I hope this doesn't mean our hard-earned savings in PSU banks will be put at higher risk to fund "big projects". The NPA recovery is better, yes, but we remember the past. Accountability is key – the bill must protect the depositor first.
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Sarah B
As someone who has worked in finance in Mumbai and London, strengthening board composition is critical. Many PSU bank boards lack independent directors with real sector expertise. This bill could modernize India's banking backbone if implemented well.
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Vikram M
The intent is good, but execution is everything. We've seen reforms get diluted in the past. Will this bill truly free banks from political interference in lending decisions? That's the billion-rupee question. 🤔
K
Karthik V
This aligns with the push for 'Aatmanirbhar Bharat'. If our own banks can fund large domestic projects, we rely less on foreign debt. The improved NPA numbers show the sector is healthier and ready for this next step. Jai Hind!
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