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India needs to strengthen RBI's independence: IMF

IMF welcomed the government's plan to inject about $32 billion to recapitalise state-run lenders

Reuters  |  Mumbai 

IMF, PSBs, banks, Indian banking sector, International Monetary Fund
Visitors are silhouetted against the logo of the International Monetary Fund at the main venue for the IMF and World Bank annual meeting in Tokyo. (Photo: Reuters)

The on Thursday called on the Indian government to restructure and reduce its stakes in them, as part of a series of recommendations issued after conducting a financial system stability assessment.

India's has been reeling under $156 billion of that are widely seen as delaying the credit growth needed to revive private investment.

Most of the is held by state-run lenders, which are suffering after years of bad lending decisions.

In its report, the welcomed the government's plan to inject about $32 billion to recapitalise state-run lenders, which was announced in October, as an important step to "support effective resolution of nonperforming assets".

But the organisation said the injection needed to be accompanied by steps to restructure state-run banks, as well as action to improve corporate governance, and a reduction of the government's stakes in the

The IMF's financial stability report also recommended India undertake "a cautious reduction" in the minimum amount of investment in government securities that are required to hold, in what is known as the statutory liquidity ratio.

Undertaking these steps "would boost the system's capacity to support credit to the economy, while reducing moral hazard and contingent fiscal liabilities", the said in the report.

When announcing its $32 billion recapitalisation plan, the government had pledged to announce a series of reforms of the state-run lenders, though it has yet to disclose details.

The also called for greater independence and more supervisory powers by law for the central bank, the Reserve Bank of India, to supervise and regulate state-run

Governor has also called on the government to undertake reforms at the state-run lenders, saying doing so was necessary to avoid repeating the bad lending decisions that have led to the current woes in the sector.

First Published: Thu, December 21 2017. 21:24 IST
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