Capital idea? (Recapitalisation of public sector banks)

Excellent study material for all civil services aspirants - begin learning - Kar ke dikhayenge!

Capital idea? (Recapitalisation of public sector banks)

---

Read more on - Polity | Economy | Schemes | S&T | Environment

---

• Credit taps to open prior to elections: The GoI is keen to let credit flow through the economy, right before the 2019 LS elections. It wants another Rs.41,000 cr to be pumped into PSBs (starved of capital) to keep them going.
• 41,000 in addition to 42,000: The GoI has a planned infusion of Rs.42,000 cr, and the total will become Rs.83,000 crore. End result? Banks may boost lending thereby stimulating economic activity.
• Get out of PCA: The Prompt Corrective Action framework of  RBI which constrained many PSBs can now be resolved through this infusion. Eleven PSBs cannot lend freely today.
• Careful allotment: The GoI has to put these funds only in PSBs that have shown improvement post-PCA application, and not on those that are useless. So PCA banks showing NPA reductions and better return on assets must be prioritised.
• New RBI chief, 4 PSBs out of PCA: Indications that four PSBs - Allahabad Bank, Bank of India, Corporation Bank and Bank of Maharashtra - will soon be out of PCA follows the review by BFS of RBI (Board for Financial Supervision).
• Government thinking contrary to RBI's: Govt. wants to pull these banks out of PCA, but RBI wanted them to be nursed back to health. So, the risk is that to pursue political objectives, the GoI may end up throwing good money after bad, by misallocating capital.
• Other new headaches: The PSBs are facing the farm loan waiver problems, and risky loans to MSMEs. It is good that GoI wants to infuse capital, but everything depends on the exact details of it.
• Summary : Huge funds are being infused into the PSBs, including those under RBI's PCA, and prudent allocation will be the only guarantee of avoiding mis-allocation.

Read more on - Polity | Economy | Schemes | S&T | Environment

Join UPSC Self Prep course | Online Course (PT Gurukul)  | Covid Special Course | Join PT courses

* Content sourced from free internet sources (publications, PIB site, international sites, etc.). Take your own subscriptions. Copyrights acknowledged.