Views: Recapitalization of Banks

Views: Recapitalization of Banks

This is a guest blog by Aneesh.
The recapitalization of 2017 is said to be aimed at tackling the twin balance sheet problem in India and also to revive growth and investment.

Pros

  1. It will help the PSU banks relieve their financial burden caused due to NPAs.
  2. The banks will have more money for lending purposes which is supposed to boost economic growth.
  3. The rupee is expected to get stronger against the dollar.

 

Cons

  1. Simply put the allocated amount is not enough. The bad loans were nearly Rs 10 lakh crore in June 2017 itself.
  2. It is not clear as to how the Rs1.35 lakh crore bonds will be redeemed. The govt. has not specified any particular agenda making it a major loose end.
  3. There is a rising concern that if the capital injection by the govt. is implemented later than required, it would drain the banks off their liquidity even further.
  4. This is merely a painkiller to sooth the suffering whereas the main reason i.e. the rampant corruption and maladministration in PSU banks is being ignored. The govt. does not seem to have any strategy to kill the elephant in the room.

 

My View

Keeping the current national and global scenario in mind, the timing of this move by the government seems off from an economic standpoint. If the govt. thinks that it can spare an amount of this magnitude then it should rather be used to create employment or for upgrading the outdated infrastructure within the country. This is purely a politically motivated step keeping Gujarat elections in focus to cajole the business and industrialist community as a contingency for the upcoming 2019 elections.
 

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