The ₹2.11-lakh crore public sector bank recapitalisation package announced by the government in October will not just be a capital infusion exercise but also entail governance reforms in order to prevent the seeds of the next boom-and-bust cycle of lending from being sown, said Reserve Bank of India Governor Urjit 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.

Patel said the recapitalisation plan will be different across banks. Recapitalisation bonds will be front-loaded for banks that have managed their balance sheet strength more prudently and can use the injected capital to lend, besides providing for legacy asset losses, he added.

The Governor elaborated that “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 but focussed business strategies as also possibly non-core asset sales. Governance reforms for all PSBs will also feature as part of the overall plan.”

Strengthen PSBs

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.”

Details of the reform-cum-recapitalisation package will be released in the coming days by the DFS. There are 22 public sector banks in the country and most of them are reeling under bad loans.

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