The Centre has now decided to take a major step in infusing cash in public sector banks (PSBs) and for the capital infusion purpose, it has initiated talks with the Reserve Bank to deploy a portion of its foreign exchange or other reserves for this purpose as per The Indian Express.
“We are looking at various options for funding recapitalisation bonds. One of the options is the RBI providing partial funding”, a government official was quoted saying by The Indian Express. As per IE, The government last month announced plans to inject Rs 2.11 lakh crore of equity in PSU banks, in which Rs 1.35 lakh crore will be infused through recapitalisation bonds, Rs 18,000 crore from budgetary resources and Rs 58,000 crore to be raised by banks from the market. As far as foreign exchange reserves worth $400 billion are concerned, the government has a view that a portion can be used for capitalising banks.
Earlier this year, the Economic Survey 2016-17 had suggested that the government use a part of the extra capital available with the RBI to capitalise banks.“Even at current levels, the RBI is already exceptionally highly capitalised. In fact, it is one of the most highly capitalised central banks in the world. So, it would seem to be more productive to redeploy some of this capital in other ways. Assuming that the RBI returns Rs 4 lakh crore of capital to the government, what are the uses to which this capital can be put? It could be used in several good ways: First, for recapitalising the banks and/or recapitalising a Public Sector Asset Rehabilitation Agency (PARA); Second, for extinguishing debt to demonstrate that the government is serious about a strong public sector fiscal position,” the Survey suggested in Volume I released in January.