Must restore banks’ health in months, if not weeks: RBI: 

Must restore banks’ health in months, if not weeks: RBI:

Context

• Reserve Bank of India’s deputy governor Viral Acharya said a feasible plan was quickly needed to address the massive recapitalization requirements of public sector banks.

What is the need of the plan?

• The central bank has been trying to restore the condition of these banks in order to facilitate loan offtake, seen as essential in reviving economic growth.

Need to raise capital

• It is the heat of the moment and banks are not raising capital at a time when plenty of liquidity was chasing stock markets.

The Indradhanush plan

• In 2014, the government announced the Indradhanush plan — a blueprint to revive public sector banks, which included capital infusion in these banks over a four-year period
• The Indradhanush was a good plan, but not powerful enough.
• we need a much more powerful plan

What next then?

• A Sudarshan Chakra aimed swiftly, within months if not weeks, restoring public sector bank health, with the current ownership structure or otherwise.

The contemplating question

• Whether bringing down government’s stake in these banks to 52% was sufficient to restore health, as some of them had incurred huge losses remains a big question.

On Insolvency and Bankruptcy Code (IBC)

• Banks should not wait for directions to pursue bankruptcy proceedings in the case of defaulting clients.
• RBI has twice directed banks to start insolvency and bankruptcy proceedings against defaulting firms.
• The reason behind mandating a higher provision for accounts brought under the IBC was to “increase banks’ provision coverage ratio.