PSU bank recapitalisation a quick fix, doesn’t solve the problem, says fund manager

Even as the Sensex continues to sclae new peaks, buoyed mainly by the PSU banks stocks rally, after the Narendra Modi-led government announced a mega plan of Rs 2.11 lakh crore to recapitalise the stressed public sector banks, Sumeet Nagar of Malabar investments says that it’s more of a quick fix solution, and doesn’t actually solve the problem. In an interview to ET Now, Sumeet Nagar, Managing Director, Malabar Investments said, “It’s obviously very good for the system, the fact that PSU banks which are struggling have got the capital, but is doesn’t solve the problem.”

The expert explained with the help of an analogy, “It’s like a patient waiting for a treatment, this is like a glucose, saline solution, it doesn’t fix the problem, it just strengthens you a little bit, so that you can bear the treatment. The treatment is you need to take those losses, and that is yet to come. I don’t think fundamentally it will change the trajectory of those banks meaningfully.”

Earlier this week, Nirmal Jain of IIFL  said that the government must now look to consolidate PSU banks. In an interview to ET Now, Nirmal Jain, Chairman of IIFL said earlier this week, “Along with the recapitalisation, there are two more things which are needed. One is the consolidation in PSU banks, because so many entities owned by the government are into th3e same business, that doesn’t make sense. The second thing needed is the autonomy of management, and upgradation of technology.”

Finance Minister Arun Jaitley announced earlier this week that Rs 2.11 lakh crore would be infused in PSU banks over two years, of which Rs 1.35 lakh crore will be through recapitalisation bonds. The remaining Rs 76,000 crore would be from the budgetary support and market raising. “If you look at the government’s track record, this was the only big piece of reform which was pending. I think the entire money which was needed for revival has been provided. Banks needed Rs 2,40,,000 crore worth of recapitalisation to get back, to their normal balance sheet,” Nirmal Jain told the channel.


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