'Governance reform' must to receive government capital, says RBI Governor Urjit Patel

Galtero Lara
Diciembre 7, 2017

"Governance reforms for all PSBs will also feature as part of the plan".

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.

Adding to this, he said there is a need to increase public investment, for which, bold steps will be taken by the government to recapitalise banks in the country.

There is bad news for public sector lenders that have not managed their balance sheets well. The government after a lot of deliberations has agreed to invest Rs. 2.1 lakh crores into the banks, but with strings attached.

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Patel further stated that banks would receive government funding based on their resolve and progress towards reform.

Patel emphasised that the capital infusion exercise will be a reform and recapitalisation package and not just a recapitalisation package so as to ensure that the money is used to strengthen public sector banks' balance sheets and "that we don't sow the seeds of the next boom-and-bust cycle of lending". "The other banks will receive government contribution based on their resolve and progress towards reform in a significant and time-bound manner, such as becoming slim and trim through adoption of simpler, better focused business strategies and also possibly sale of non-core assets", said Patel.

"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.

In a stimulus package aimed to boost flagging economic growth, create jobs and increase credit flow, the cabinet, in October, approved a Rs 2.11 lakh crore recapitalisation plan for state-run banks and massive road infrastructure investment of almost Rs 7 lakh crore over five years.

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