The recent recapitalization plan announced by the government for public sector banks will provide substantial funds to the lenders to address the capital shortage that has a major negative impact on their ratings, says a report. The government recently announced to infuse Rs.2.1 lakh cr. ($32 billion) in state-run lenders over a two-year period. Under the current plan, Rs.1.35 trillion of the total amounts will come from recapitalization bonds and Rs.0.76 trillion from budgetary support and fund-raising in the capital markets over the next two years. The lending growth, however, is still likely to remain weak, at least in the short term, as banks will prioritize asset resolution and provisioning over expansion. The report further said that recapitalization bond if issued by the government could affect its target to reduce central fiscal deficit to 3.2 per cent of GDP this year.

(NDTV)