After PSU bank recapitalisation, consolidation awaited in the sector: IIFL

After Narendra Modi government announced a mega plan of Rs 2.11 lakh crore to recapitalise state-run lenders, the government must next look to consolidate PSU banks.

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Indian stock markets welcomed the decision but bond investors were more circumspect.(Reuters Photo)

After Narendra Modi government announced a mega plan of Rs 2.11 lakh crore to recapitalise state-run lenders, the government must next look to consolidate PSU banks, says Nirmal Jain of IIFL. In an interview to ET Now, Nirmal Jain, Chairman of IIFL said, “Along with the recapitalisation, there are two more things which are needed. One is the consolidation in PSU banks, because so many entities owned by the government are into the same business, that doesn’t make sense. The second thing needed is the autonomy of management, and upgradation of technology.”

Finance Minister Arun Jaitley yesterday announced that Rs 2.11 lakh crore would be infused in PSU banks over two years, of which Rs 1.35 lakh crore will be through recapitalisation bonds. The remaining Rs 76,000 crore would be from the budgetary support and market raising.

“If you look at the government’s track record, this was the only big piece of reform which was pending. I think the entire money which was needed for revival has been provided. Banks needed Rs 2,40,,000 crore worth of recapitalisation to get back, to their normal balance sheet,” Nirmal Jain told the channel.

RBI governor, Urjit Patel welcomed the move saying, “Economic history has shown us repeatedly that it is only healthy banks that lend to healthy firms and borrowers, creating a virtuous cycle of investment and job creation. The Government of India’s decisive package to restore the health of the Indian banking system is in the view of the Reserve Bank of India, a monumental step forward in safeguarding the country’s economic future.”

Other experts too had pointed out that a consolidation in the PSU bank space is the way forward. Manish Chokhani of Enam Holdings said recently, “It cannot be that public sector banks remain 70% of India. Incrementally anyway 50% is going to private sector banks and NBFCs. What happens to Air India, what happens to MTNL what happens to sector after sector – Doordarshan. Inevitably it will happen to the public sector space with no disrespect there are fine managers there, but the decision making is so tied up that in an agile world, you would end up losing. Compensation levels are not great either.”

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