RBI Backs Government’s Rs 2.11 Lakh Crore Bank Recapitalisation Plan

The Reserve Bank of India (RBI) governor Urjit Patel has welcomed the government’s proposed Rs 2.11 lakh crore recapitalisation programme, saying it will help in increasing opportunity for investment and job creation in the country.

“A well-capitalised banking, and in general, financial intermediation, 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,” Patel said in an statement issued today.

The Union government had on Tuesday unveiled an ambitious plan to pump in Rs 2.11 lakh crore capital over the next two years into public sector banks (PSBs), saddled with high and non-performing assets.

Calling the government’s move ‘a monumental step’, he said that the programme will contribute to safeguarding the country’s economic future.

In his statement, Patel stated that the recapitalisation bonds will be liquidity neutral for the government except for the interest expense that will contribute marginally to the annual fiscal deficit numbers of the country.

“By deploying recapitalisation bonds, it will front-load capital injections while staggering the attendant fiscal implications over a period of time.” he said, adding that the proposed recapitalisation package for the banking sector combines several desirable features and opens up scope for larger participation from private shareholders in those state-owned banks.

The programme will front-load capital injections while staggering the attendant fiscal implications over a period of time, the RBI governor said.