Should we recapitalise the banks?

Our priority should be to address the policy failures that gave our banking crisis

As the banking crisis unfolds, banks will be short of equity capital. There will be calls for taxpayers to invest in private or public banks. The exchequer is unable to absorb such a shock, and it is a bad use of money. We have the luxury of time, and the opportunity to address this at the root cause.

Banks in India have a leverage of 20 times. That is, they use Rs 5 of equity capital and Rs 95 of deposits to create a pool of Rs100, which is then invested in various assets. A loss of over Rs 5