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