Amount public sector bank recapitalization
Answers
In the case of Public Sector banks, recapitalization is injection of capital mainly through equity investment by the government to financially strengthen them. Since the government is the majority shareholder of PSBs, the responsibility of adding capital to them falls on the shoulders of the government.
Recapitalisation was necessary because the PSBs are facing financial problems and they need money in the context of rising bad debts. Similarly, they need funds to meet the higher capital requirements under Basel III norms. Altogether, there are following three sound reasons for recapitalization of PSBs.
1. Rising volume of bad assets has led to erosion of capital.
2. The Basel III capital norms requires higher capital in banks.
3. Expanding credit needs in the economy can be made only with higher capital.