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Context
The proposed recapitalisation of public sector banks
What has happened?
The proposed recapitalisation of public sector banks will include a package of reforms, Reserve Bank of India (RBI) Governor Urjit Patel said, adding that the finance ministry would release the details in the coming days
Backdrop
- The Centre had announced a ₹2.11 lakh crore recapitalisation plan for PSU banks, of which ₹1.35 lakh crore would be raised through recapitalisation bonds
- Reeling under the pressure of poor asset quality over the last three years, these banks have seen their capital erode
- Apart from making provisions for bad loans, the lenders would need capital to meet the Basel-III norms and to support their business growth
Priority
Banks that had managed their balance sheets ‘well’ would be given priority for capital infusion while others would have to show the resolve to reform
Working with Deptt of finance
The RBI had been working closely with the department of financial services to finalise the plan for each bank: the aim was to determine the extent of funding to be raised by the bank and the amount of recapitalisation bonds to be placed on its balance sheet as the government’s equity contribution.
