RBI Grade B Current Affairs — 11 July 2026

The Union Cabinet, chaired by Prime Minister Narendra Modi, granted in-principle approval for Public Sector Banks (PSBs) to amalgamate through an Alternative Mechanism (AM). The AM comprises senior ministers empowered to approve merger proposals. This enables PSBs to initiate consolidation voluntarily, subject to board-level decisions and AM approval, without requiring fresh Cabinet clearance for each merger. The move targets stronger, globally competitive banks by reducing fragmentation in the PSB sector.

India has historically maintained a large number of public sector banks, many of which are sub-scale by global standards, making them vulnerable to credit cycles, capital inadequacy, and governance weaknesses. The Alternative Mechanism (AM) for PSB amalgamation is a structural reform designed to streamline consolidation without the procedural delays of repeated Cabinet approvals. The AM is a committee of senior ministers — typically including the Finance Minister — that can evaluate and approve specific merger proposals after PSB boards pass enabling resolutions. This was the institutional framework that later enabled landmark mergers: Bank of Baroda absorbing Vijaya Bank and Dena Bank (2019), and the mega-consolidation of 2020 that reduced PSBs from 27 to 12. The rationale rests on several pillars: larger banks command better credit ratings, lower cost of funds, and greater capacity to lend to infrastructure and large industries. Consolidation also reduces competitive undercutting among state-owned lenders and improves regulatory oversight efficiency for RBI. However, critics flag risks — cultural integration challenges, branch rationalisation causing job anxiety, and the danger of concentrating NPAs within surviving entities. For UPSC, this sits at the intersection of economic reform, federalism (Centre's role in PSB governance), and financial sector regulation. For RBI Grade B, it is directly relevant to banking structure, NBFC-bank dynamics, and financial stability.

NPS Trust Chairman Dinesh Khara stated India's financial sector is in a 'comforting situation' compared to US private credit risks. SEBI's strict leverage regulations for private credit funds, limiting borrowing, distinguish India's Alternative Investment Fund (AIF) ecosystem. US private credit markets face opacity and systemic risk concerns flagged by global regulators. India's regulated approach, with SEBI-mandated caps on leverage within Category II AIFs, provides structural safeguards absent in the less-regulated US private credit space.

Private credit refers to non-bank lending by funds — typically to mid-market companies — outside traditional capital markets. In the US, this has grown into a $1.7 trillion market, celebrated for filling credit gaps but increasingly scrutinised for opacity, leverage build-up, and systemic interconnectedness with insurance companies and pension funds. The IMF and FSB have raised red flags about valuation opacity and hidden leverage in US private credit.

In India, AIFs — particularly Category II funds — are the primary vehicles for private credit. SEBI regulates these stringently: Category II AIFs cannot borrow except for day-to-day operational purposes and are barred from leverage for investment. This is a structural constraint that prevents the kind of debt-on-debt amplification seen in US private credit funds.

Dinesh Khara's statement carries weight because NPS (National Pension System) is a significant institutional allocator that channels retirement savings into such instruments. His confidence in India's framework reflects the regulator-first approach SEBI has taken — prioritising systemic stability over return maximisation.

For RBI Grade B candidates, this is significant because it connects three examination pillars: financial stability (a core ESI topic), SEBI's AIF regulatory architecture (FM overlap), and India's macroprudential edge. Questions may ask about AIF categories, leverage restrictions, or India-US private credit comparison in a passage-based MCQ format.