State-run Small Industries Development Bank of India (SIDBI) on Thursday welcomed this week's announcement of the plan to recapitalise public sector banks to relieve the burden of their accumulated bad loans, saying the move would improve credit disbursement.
"These measures augur well for the banking system and point to the resolve of the government to make the system overcome the challenges being faced by it because of the huge non-performing assets (NPAs) and constrained capital adequacy ratio," SIDBI Chairman Mohammad Mustafa said in a statement here.
"These steps will enable enhanced credit disbursement in the system," he added.
In a stimulus package aimed to boost flagging economic growth, create jobs and increase credit flow, the Union Cabinet on Tuesday approved a Rs 2.11 lakh crore recapitalisation plan for state-run banks and massive road infrastructure investment of nearly Rs 7 lakh crore over five years.
Of the support to banks, Rs 1.35 lakh crore will be raised through recapitalisation bonds and the remaining sum through budgetary support and market borrowings.
"This large recapitalisation plan would be positive for the credit quality of these bonds and serve to reinforce the expectation of strong government support for these banks," said Sankar Chakraborti, Chief Executive SME Rating Agency of India (SMERA), which was created by SIDBI.
SIDBI is the premier funding institution for the micro, small and medium enterprise (MSME) sector.
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