Reserve Bank Governor Urjit Patel has called the government’s bank recapitalisation plan a ‘monumental step forward’ in safeguarding India’s economic future. On Tuesday evening, union Finance Minister Arun Jaitley announced that Rs 2.11 lakh crore would be infused in PSU banks over two years.
Welcoming the government’s decision, Patel in a statement said that a well-capitalised banking system is a pre-requisite for stable economic growth.
“Economic history has shown us repeatedly that it is only healthy banks that lend to healthy firms and borrowers, creating a virtuous cycle of investment and job creation. The Government of India’s decisive package to restore the health of the Indian banking system is in the view of the Reserve Bank of India, a monumental step forward in safeguarding the country’s economic future,” Patel said.
“For the first time in last decade, we now have a real chance that all the policy pieces of the jigsaw puzzle will be in place for a comprehensive and coherent, rather than piece- meal, strategy to address the banking sector challenges,” Patel added.
Outlining the ‘desirable features’ of the recapitalisation package, Patel said the recapitalisation bonds will front-load capital injections while staggering the fiscal implications over a period of time.
While outlining the plan, Jaitley had said that of the Rs 2.11 lakh, Rs 1.35 lakh crore will be through recapitalisation bonds. And the remaining Rs 76,000 crore would be from the budgetary support and market raising.
Patel said the bonds would involve participation of private shareholders of PSU banks by requiring that parts of the capital needs be met by market funding.
“Last but not the least, it will allow for a calibrated approach whereby banks that have better addressed their balance-sheet issues and are in a position to use fresh capital injection for immediate credit creation can be given priority while others shape up to be in a similar position,” he said.
Patel assured that the government that the central bank would work with it to ensure the plans reach their natural completion to the benefit of the broader Indian economy.
“I commend the government on its bold steps in this direction, starting with implementation of the Insolvency and Bankruptcy Code that is helping resolve the underlying corporate stress, and culminating in yesterday’s announcement of the public sector bank recapitalisation programme,” Patel said.
(With inputs from agencies)