Banks’ reforms key to funding under recapitalisation package: Patel

MUMBAI: Reserve Bank of India governor Urjit Patel said on Wednesday that the recapitalisation package for public sector banks will not only be linked to their capital requirements but also on their reforms initiatives to ensure that the funds are not used to sow the seeds of next “boom and bust cycle of lending.”

The central bank is working with the government to finalise the recapitalisation plan, which Patel termed as “reform-and-recap package.”

The Department of Financial Services (DFS), a unit of finance ministry, will soon release the details of the package, he added.

In October, finance minister Arun Jaitley had announced an unprecedented ₹2.11 lakh-crore PSU bank recapitalisation plan to strengthen public sector banks. The plan includes recapitalisation bonds of ₹1.35 lakh crore.

Patel said that RBI is working with the Centre on the extent of funding to be raised by stateowned banks, and the amount of recapitalisation bonds to be placed on the bank’s balance sheets as the government’s equity contribution. “Recapitalisation bonds will be front-loaded for banks that have managed their balance sheet strength more prudently and can use injected capital to lend besides providing for legacy asset losses.”

For others, the capital allocation will be based on their resolve and progress towards reform in a significant and time-bound manner. These include becoming “slim and trim” through simpler and better focussed business strategies, and also the sale of non-core assets, Patel said. Malvika Joshi contributed to this story.