Ex-RBI chief Rangarajan favours cash recap of banks

Cash will have more profound effect than issue of bonds, he says

Former Governor of Reserve Bank of India (RBI) C. Rangarajan on Friday said it was time to consider a switch over from bonds to cash for recapitalisation of banks.

“One of the answers to the problems faced by the banking system is to ensure recapitalisation is done properly. The mode of recapitalisation now is through issue of bonds. Infusion of funds into the banks will have a much more profound effect than issuing the bonds,” he said at a seminar on NPAs and resolution organised by ICFAI Foundation for Higher Education here.

His suggestion comes in the backdrop of ₹2 lakh crore worth of recapitalisation of banks over the past three years and the government announcing plans for a ₹70,000 crore capital infusion for public sector banks a few months ago.

“What the banks really gain [from bonds] is the interest income. I plead guilty to the charge as we initiated this in early 1990s,” he said, adding that those were, however, different times.

Besides the mode of recapitalisation, other measures Mr. Rangarajan suggested for addressing the NPA issue were adequate attention to be paid at all levels to risk management, including strengthening of early warning systems.

8 more years to $5 tn

Hoping economic growth may pick up next year onwards, the former Chairman of the Prime Minister’s Economic Advisory Council said it would take another eight years for India to become $5-trillion economy as opposed to Prime Minister Narendra Modi’s target of 2025, due to the muted growth now.

“Growth may pick up next year. [It] may not be substantial, but it may pick up next year.. it takes 2-3 years to get back the growth of higher than 7%,” he said.

(With PTI inputs)

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Printable version | Feb 20, 2020 12:49:49 AM |

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