Rights issue better way to recapitalise PSBs, says Y V Reddy

RBI should be the main one to ensure financial stability: Reddy

Former Reserve Bank of India (RBI) governor Y V Reddy on Friday praised the government’s Rs 2.11-lakh crore recapitalisation plan for public sector banks.

He, however, said it could have been through rights issue keeping in mind other shareholders as well. 

“When you are providing equity, you are doing it along with other owners of the bank. So technically you should give an option. If they don’t pick up the shares, you take it. The whole idea is that you are going through a process that is more market-oriented,” he said.

On bonds, Reddy said those issued in the 1990s were more haphazard as the market was not developed, but now the government should be meticulous about the structure of the bonds and other aspects such as tradeability. 

Overall, the recapitalisation was “unequivocally the right thing to do, and should have been done earlier”, Reddy said, on the sidelines of the first R H Patil memorial lecture organised by Clearing Corporation of India Ltd (CCIL).

Among all regulators, the RBI should be the main one to ensure financial stability, he said. 

Reddy also cautioned the RBI and CCIL to keep a close watch on bitcoin as it has the potential to replace currencies and it’s impact may spill over to the real sector as well. 

“We should start thinking about such emergent technologies like bitcoins much before the world does,” Reddy said.

“Technology and demography are going to change savings, investments and transactions,” Reddy said, urging regulators to continuously remain updated on these.