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Banking Sector Reforms in India: A Policy Review and Future Outlook

Archana Dwivedi

The banking sector in India has undergone considerable transformation over the past three decades, driven by a series of comprehensive reforms aimed at attractive efficiency, transparency, competitiveness, and financial stability. This paper presents a critical review of key policy initiatives and reforms implemented in the Indian banking sector, beginning with the landmark recommendations of the Narasimham Committee in the early 1990s, which laid the foundation for liberalization and modernization of the banking system. The study evaluates subsequent reforms including the introduction of prudential norms, asset quality reviews, capital sufficiency standards, technological integration, and consolidation measures. Special attention is given to the role of regulatory institutions such as the Reserve Bank of India (RBI) and the Ministry of Finance in shaping the reform agenda. The paper also explores the impact of financial inclusion initiatives like Pradhan Mantri Jan Dhan Yojana (PMJDY), the rise of digital banking, and the establishment of new-age banks such as Payment Banks and Small Finance Banks moreover, recent measures such as the Insolvency and Bankruptcy Code (IBC), the merger of public sector banks, and the privatization agenda are critically analyzed for their effectiveness in strengthening the banking ecosystem. While the reforms have led to notable improvements in operational efficiency, risk management, and service delivery, several challenges continue. Issues such as rising non-performing assets (NPAs), cyber security risks, governance concerns, and limited credit flow to priority sectors continue to delay sustainable growth. The paper concludes with a forward-looking perspective, offering recommendations for future policy directions. These include enhancing regulatory oversight, fostering innovation through fintech collaboration, improving credit risk assessment mechanisms, and further liberalizing the sector to attract private and foreign investment. Overall, the paper argues that while India’s banking reforms have made significant strides, a dynamic and adaptive policy framework is essential to navigate the developing global financial landscape and support the country's ambitious economic growth targets.


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