3 reasons why imf thinks psb recap plan is significant reform launched by government

3 reasons why imf thinks psb recap plan is significant reform launched by government

Postrevelationof Rs 13,000 crore fraud at Punjab National Bank (PNB), public sector banks (PSBs) which are already reeling under an immense pressure of mounting bad loans have come under increased scrutiny. The multi-crore fraud at the second largest public sector lender of the country has exposed the vulnerabilitiesin the banking and corporate sectors of the country. Not only the PSUs, even the government is now busy finding new foolproof ways, in addition to the bank recapitalisation programme that it launched last year, to address these vulnerabilities and accelerate the resolution of non-performing assets (NPAs). Meanwhile, International Monetary Fund (IMF) thinks the government’s bank recapitalisation programme is a robust effort in this direction. The recent policy reforms to address the problems related with the banks and corporate sector have been significant, PTI reported citing IMF Deputy Managing Director Tao Zhang who is about to visit India soon.

Secondly, IMF thinks that the latest Insolvency and Bankruptcy Code adopted in May 2016 is another effort worth praising. India’s banking sector issaddledwith NPAs to the tune of Rs 9.5 lakh crore by March-end. The amount is up from Rs 8 lakh crore in year-ago period, according to the latest Assocham-Crisil report. The PSB recapitalisation programme should be part of a broader package of financial reforms to speed up the resolution of NPAs, improve governance norms in the public sector banks, cut down the role of the public sector in financial system, and increase bank lending capacity, PTI reported citing Tao Zhang. He also said that IMF supports the ongoing efforts launched by the government in strengthening the health of India’s financial system.

PNB on 14 February reported that billionaire diamond merchant and his firms colluded with a few of its former employees at Brady House branch in Mumbai to generate fake Letters of Undertaking (LoUs). The letters of credit were allegedly used by Nirav Modi and his companies to raise credit from overseas branches of a few Indian banks to the tune of Rs 11,700 crore. Soon after the government handed the investigation toEnforcementDirectorate (ED) and Central Bureau of Investigation (CBI). The fraud amount now stands at nearly Rs 13,000 crore. The investigation is still ongoing.