The government is considering introducing the Banking Governance Bill on February 1, 2026, during the Union Budget presentation. This move aims to empower public sector banks to finance large projects independently. The proposed legislation is expected to enhance the professionalism, competitiveness, and technological advancement of PSUs, while also improving board composition and accountability, as reported by NDTV Profit.
The government is also contemplating increasing the foreign direct investment (FDI) limit in public sector banks beyond the current 20% cap. Additionally, efforts may be made to bridge the pay and talent gaps between public and private banks. The draft Bill is still under development and is anticipated to take another three to four months before being presented in Parliament, according to the report.
The formal announcement of the Bill in the Budget would signify the government’s commitment to implementing a significant structural reform in the banking sector. Finance Minister Nirmala Sitharaman is set to present the 15th Budget of the PM Modi government on February 1, marking the second full Budget since the NDA’s re-election in 2024.
Investors are expected to closely monitor debt metrics, deficit outcomes, and planned borrowings in the upcoming budget to align with strategic objectives. The Economic Survey 2025-26 highlights a notable improvement in the asset quality of scheduled commercial banks, with a considerable decrease in bad loans and increased recoveries. The survey indicates that the gross non-performing asset (GNPA) ratio and net NPA ratio have hit multi-decadal lows, while the capital-to-risk-weighted-asset ratio (CRAR) of banks stands strong at 17.2% as of September 2025. The recovery rate of NPAs in banks has nearly doubled from 13.2% in FY18 to 26.2% in FY25.
