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.
"While Q2 growth was marginally lower than predictions, growth is expected to pick up, in lieu of the recent economic reforms undertaken by the government. The recapitalisation of public sector banks is a reform and recap package which will help improve credit flow in the economy," he said while addressing a press conference post the rollout of the RBI's bi-monthly monetary policy.
Further, Patel stated that the RBI is working in collaboration with the Department of Financial Services (DFS) under the Ministry of Finance to finalise the extent of funding and the amount of recap bonds that need to be projected on the balance sheet.
Patel further stated that banks would receive government funding based on their resolve and progress towards reform.
The main aim of this, he says, is to use the available funds to strengthen their balance sheets.
"The DFS will shortly release further details regarding the same," said Patel.
Earlier in October, Finance Minister Arun Jaitley had announced an unprecedented PSU banks recapitalisation program of Rs. 2.11 lakh crore, out of which Rs. 1.35 lakh crore will come from recap bonds, and rest from markets and budgetary support.
"To improve the lending capacity of the banks, we have announced the recapitalisation programme, which is essential to increase public spending on infrastructure, and that expenditure on infrastructure," Jaitley said at a press conference in the national capital.
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.
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