Banks, government should maintain arm's length: Rangarajan

Hyderabad: Former RBI governor C Rangarajan on Friday suggested that recapitalisation of banks should be done through by infusing cash rather than issuing bonds, as he cautioned that Boards of public sector undertakings, including banks, should maintain "arm's length" from the government.

Rangarajan comments assume significance as Finance minister Nirmala Sitharaman, in August, announced upfront capital infusion of Rs 70,000 crore into public sector banks, a move aimed at boosting lending and improving liquidity situation.

At the inaugural session of the seminar 'Non-Performing Assets (NPA) and its Resolution in Indian Banks' at ICFAI Foundation for Higher Education, he, however, said the centre has infused Rs 2 lakh crore as capital into various banks during the past three years and it would be difficult for any dispensation to pump in so much as capital in cash form.

"I also have a point that one of the answers to the problems faced by the banking system is to ensure that the capitalisation of the banks is done properly."

According to him, the mode of recapitalisation that is being done now is through the issue of bonds. "What the banks really gain is only the interest income through the bonds.

This also needs a relook...I plead guilty because we initiated this in the early 1990s. But that was a different situation," he said.