Recapitalising government-owned banks may not be easy. The Communist Party of India general secretary, A.B. Bardhan has written to Prime Minister Manmohan Singh asking him not to take recourse to World Bank money to recapitalise these banks.
In a stark contrast to their earlier stand, Bardhan, in his letter, said that the banks can even raise resources from the capital market.
“If such extra requirement is a necessity, it can be easily generated by either the government subscribing to the same or even through the IPO route as is permissible under the existing rules,” the letter said.
Recapitalisation is the process through which balance sheets of banks are infused with cash to strengthen them.
This enables banks to withstand the risks associated with lending and extend more loans.
Bardhan also added in his letter that the public sector banks are adequately capitalised and have met the stringent international Basel Committee norms of capital requirements.
Further, he has said “at a time when World Bank’s policies are subjected to question and review due to their role in the present global economic crisis, it is perhaps inappropriate and quite intriguing why our country should go to them for this loan.”
The World Bank has sanctioned a loan of $3 billion for PSU bank recapitalisation, of which $ 2 billion would be given by the end of the year as the first instalment. Banking sector unions have also threatened to go on indefinite strike in case the World Bank funds are used for recapitalisation of banks.
“We would take very stern action in case World Bank money is injected in PSU banks. We would go on indefinite strike if need be,” said an official of the All India Bank Employees Association that represents about 7.5 million employees told Hindustan Times.