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Reserve Bank of India Governor Raghuram Rajan on Thursday said banks in distress would get capital support from the government if they made a clear case for recapitalisation.
The government has changed the criteria for infusion of capital in public sector banks which says banks fitting the ‘return on asset and return on equity’ parameters will be eligible for recapitalisation.
“Capital, this is something that the government has focused on... send a message that we will recapitalise good banks. Now, that does not mean that the banks that are in distress will not get capital but they will have to justify in a clearer way what they are going to use that capital for,” he said.
Rajan in an interview to news channel CNBC TV18 said it would be difficult for weak banks to access market for funds, but for government support they have to provide a clear business plan.
“Now clearly those (banks) have the hardest time accessing the market but they will have to make the case that this is why they need the capital, this is the use they are going to make of it,” he said.
On March 31, the government infused Rs 6,990 crore in nine public sector banks, including State Bank of India, Bank of Baroda, Punjab National Bank for enhancing their capital and meeting global risk norms.
On the improvement in the rating outlook by Moody’s, Rajan said it is a “positive perception of what we have done over the past few quarters.”
He, however, cautioned that the government and regulators should not lose sight on what more needs to be done.
"We should not celebrate upgrades as we did not worry about downgrades. There are a lot of low-hanging fruits that need to be picked," he added.
