Mumbai (Maharashtra) [India], Dec 6: The Reserve Bank of India (RBI) Governor Dr Urjit Patel hailed the recently-announced bank recapitalisation plan as a "reform and recap package", adding that the move will give a much-needed impetus to credit growth in the economy. There are 22 public sector banks in the country and majority are reeling under bad loans.
Announcing the package here, Finance Minister Arun Jaitley had said the details of the reform measures for the public sector banks would be unveiled at a later date. The government after a lot of deliberations has agreed to invest Rs. 2.1 lakh crores into the banks, but with strings attached.
The other banks that will receive government contribution will be based on their resolve and progress towards reform in a significant and time bound manner such as becoming "slim and trim" through adoption on simpler, better focused business strategies and also possibly non-core asset sales. Recapitalisation bonds will be front-loaded for banks that have managed their balance sheet strength more prudently and can use the injected capital to lend, besides providing for legacy asset losses, he added.
On the positive side here on Wednesday, Patel said the RBI showed there had been some pick up in credit growth in recent months.
"The RBI has been working closely with the Department of Financial Services (DFS) to finalise for each bank the extent of funds to be raised by a bank and the amount of recapitalisation bonds to be placed on a bank's balance sheet as government's equity contribution", said Patel.
"This will be a reform and recap package.so as to ensure this money is used to strengthen public sector bank balance sheets and that we don't sow the seeds of the next boom and bust cycle of lending", Dr. Patel said after announcing the monetary policy review.
In the last 10 years, government has invested Rs 1.50 lakh crore in state-run banks but it is only now that the government is proposing certain preconditions to receiving capital.