Author: Errol D' Souza and Astha Agarwalla
Source: Economic & Political Weekly, Vol. 56, Issue No. 40, 02 Oct 2021
Abstract: Weak balance sheets of public sector banks warrant infusion of equity capital by the government. Recapitalisation is liquidity neutral for the government when financed via an issue of government securities that a recapitalised bank is mandated to purchase. Bank balance sheets at the time of recognition of non-performing assets and the associated negative net worth is equivalent to that when the bank receives equity through this liquidity neutral mode of financing. Correspondingly, the fiscal deficit is higher than reported the moment a state-owned bank has negative net worth and there are negative feedback loops between the fiscal and banking systems.
Please check here to access the full text.
No comments:
Post a Comment