Former RBI Governor Bimal Jalan today endorsed the government's decision to recapitalise the public sector banks (PSBs) saying it will strengthen banking system and boost investment.
Jalan further said rise in fiscal deficit by 0.1 or 0.2 per cent will not matter if it is on the account of higher capital expenditure at a time when the overall shape of the economy is strong.
Yesterday, Finance Minister Arun Jaitley unveiled an unprecedented Rs 2.11 lakh crore two-year road map to bolster NPA-hit public sector banks, which includes re-capitalisation bonds, budgetary support, and equity dilution.
Such bonds were first introduced by the government in the 1990s to recapitalise PSU banks.
"The step that the finance minister has announced yesterday will certainly boost demand and investment as well as strengthen the banking system," Jalan told PTI in an interview.
The former RBI Governor also said that so far as fiscal deficit is concerned, the finance minister has indicated that he will stick to 3.2 per cent target.
"Even if fiscal deficit increases by 0.1 per cent or 0.2 per cent, on the larger prospective of economy it does not matter as long fiscal deficit is not on the account of revenue deficit but on the account of capital expenditure," he noted.
Jalan, who was Governor of RBI from 1997-2003, also said that the overall shape of the economy is very strong.
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