The Union Budget this year could be the point where long-pending changes in public sector banks finally move off paper. The Finance Ministry is likely to signal the shift in Budget 2026, possibly by floating a Banking Governance Bill to change the way government-owned banks are run. If unveiled, the proposed legislation is expected to lay the groundwork for making public sector banks (PSU banks) more professional, competitive and aligned with global standards, while keeping India’s long-term Banking Vision 2047 firmly in focus. According to officials familiar with the discussions, the Bill is still being finalised and may take another three to four months before it is ready for introduction in Parliament. However, its formal announcement in the Budget would signal the government’s intent to push through one of the most significant structural reforms in the banking sector in years.
A reform blueprint for the next two decades
It is meant to address persistent structural issues in PSU banks - from governance gaps and board accountability to leadership autonomy and compensation structures - while preparing them for the demands of a rapidly evolving financial system.
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At the heart of the proposal is the idea that public sector banks, which still account for a large share of India’s credit flow, need to function with the same agility, professionalism and risk discipline as private and foreign banks if they are to support India’s growth ambitions over the next two decades.
Banking Vision 2047 at the core
Officials say the Bill is being drafted with a clear long-term lens: what Indian banking should look like by 2047, when the country marks 100 years of Independence. The thinking behind the proposal goes well beyond routine compliance. Policymakers want public sector banks to be run with tighter governance, stronger risk controls and greater use of technology, supported by boards that can take timely, strategic calls instead of getting stuck in layers of procedure. The larger goal is to ensure PSU banks are not just safe keepers of public savings, but strong, competitive lenders that can back big infrastructure projects, industrial growth and India’s digital push.
Boards likely to be at the centre of reform
Board-level changes are expected to be a key part of the Bill. Officials are examining ways to improve board composition, bring in more sector expertise and draw clearer lines of responsibility between directors and management. PSU bank boards have often been criticised for limited independence and frequent leadership churn. The proposed framework may look at redefining the role of independent directors, simplifying appointments and giving boards more room to make strategic decisions rather than routine approvals.
Pay and talent gaps under the spotlight
Pay has been a sore point for years. Senior leaders in public sector banks have often pointed out that their salaries lag far behind those in private banks, making it harder to bring in and hold on to experienced talent. That means easing day-to-day bottlenecks, strengthening accountability and giving management the space to take timely decisions as market conditions change.
The timing is also deliberate: banks are in a far stronger position today, with healthier balance sheets, lower bad loans and improving profits, making it easier to tackle governance reforms that were once postponed during periods of stress.
Even if the Bill is mentioned in the Budget, officials stress that rollout will take time. Consultations are still in progress, and a draft law could take a few months to finalise before it goes through Parliament.
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