Reforms to tag along with recap, says RBI

Mumbai: The RBI on Wednesday said that the recapitalisation plan announced by the government to shore up the balance sheet of public sector banks (PSBs) would be accompanied by governance reforms including the sale of non-core assets.

“Governance reforms for all PSBs will also feature as part of the plan. This will be a reform and recap package and not just recap package so as to ensure that these money is used to strengthen PSB balancesheets and that we don’t sow seeds of the next boom and bust cycle of lending,” said Urjit Patel. He added that the final details would be announced soon by the finance department.

In October, the government announced Rs 2.1 lakh crore capital infusion plan for ailing public sector banks that includes Rs 1.35 lakh crore through issue of bonds, Rs 18,000 crore from the Budget and the remaining Rs 58,000 crore through share sales.

Mr Patel informed that the RBI is working closely with the government to finalise the extend of funding to be raised by banks and the amount of recapitalisation bonds to be placed on banks balance sheet as government’s equity contribution. However, he added that the plan would be differentiated across banks. “In particular, the recap bonds will be front loaded for banks that have managed their balance sheet strength more prudently and can use injected capital to lend besides providing for legacy asset losses,” he added.