The reported sanction of a loan by the World Bank on commercial terms for the recapitalisation of Indian banks is surprising. World Bank knows that there is no shortage of forex for India. Is it because it is running short of creditworthy clientele? For India, the loan means an addition to the already heavy external debt. If the money is converted into rupees and given to banks, the RBI will have to face the problem on the money supply front.
The government could have followed the earlier procedure of recapitalising banks through the injection of rupee resources asking them to reinvest them in government securities. It would have been a cash-neutral transaction. Forex is a real resource unlike the rupee. The beneficiary banks may well be advised to keep the capital in forex and deploy them for their external transactions.
A Seshan, on email
You’ve hit your limit of {{free_limit}} free articles this month.
Subscribe now for unlimited access.
Already subscribed? Log in
Subscribe to read the full story →
Smart Quarterly
₹900
3 Months
₹300/Month
Smart Essential
₹2,700
1 Year
₹225/Month
Super Saver
₹3,900
2 Years
₹162/Month
Renews automatically, cancel anytime
Here’s what’s included in our digital subscription plans
Access to Exclusive Premium Stories Online
Over 30 behind the paywall stories daily, handpicked by our editors for subscribers
Complimentary Access to The New York Times
News, Games, Cooking, Audio, Wirecutter & The Athletic
Business Standard Epaper
Digital replica of our daily newspaper — with options to read, save, and share
Curated Newsletters
Insights on markets, finance, politics, tech, and more delivered to your inbox
Market Analysis & Investment Insights
In-depth market analysis & insights with access to The Smart Investor
Archives
Repository of articles and publications dating back to 1997
Ad-free Reading
Uninterrupted reading experience with no advertisements
Seamless Access Across All Devices
Access Business Standard across devices — mobile, tablet, or PC, via web or app