RBI, Centre working closely on bank recapitalisation plan

Mumbai, Dec 6 (IANS) The Reserve Bank of India (RBI) is working closely with the government on the latter's recent bank recapitalisation plan to deal with the major issue of non-performing assets (NPAs), or bad loans, accumulated by state-run banks, the central bank said on Wednesday.

Addressing reporters here following the RBI announcement of its fifth monetary policy review of the fiscal at which the central bank maintained its key interest rate at six per cent for the third time in succession, Governor Urjit Patel said that the October recapitalisation plan would help boost dismal credit growth.

"RBI is working closely with the government on bank recapitalisation", particularly on the share of recapitalisation each bank would receive", Patel said.

"Recapitalisation of public sector banks may help improve credit flows further," Wednesday's monetary policy statement said.

Declaring that the recapitalisation plan had to be "differentiated across banks", the RBI Governor said the recapitalisation bonds required to be "front-loaded for banks with better balance sheets."

He also stressed that recapitalisation would be accompanied with a reform package covering all banks to ensure that the problems do not recur.

In a stimulus package aimed to boost flagging economic growth, create jobs and increase credit flow, the cabinet, in October, approved a Rs 2.11 lakh crore recapitalisation plan for state-run banks and massive road infrastructure investment of nearly Rs 7 lakh crore over five years.

Of the support to banks, Rs 1.35 lakh crore will be raised through recapitalisation bonds and the remaining sum through budgetary support and market borrowings.

Announcing the package here, Finance Minister Arun Jaitley had said the details of the reform measures for the public sector banks would be unveiled at a later date.

Chief Economic Advisor Arvind Subranmanian clarified that the recapitalisation bonds would count as debt, while their exact nature would be made available in due course.

On the positive side here on Wednesday, Patel said the RBI showed there had been some pick up in credit growth in recent months.

The accumulated NPAs in the Indian banking system have crossed the staggering level of Rs 8 lakh crore.