Finance Minister Arun Jaitley met with public sector units (PSUs) on Friday to discuss a roadmap for the recapitalisation.
Discussing the same, Vaibhav Agarwal of Angel Broking, said around Rs 30,000 crore to Rs 35,000 crore is needed to bring up capital adequacy of the PSU banks, adding that “this is just the first step. They will need to restore their profitability, lending standards and management at the top as well.”
It is better to recapitalise performance-oriented banks instead of low capital banks that typically get into a situation of excessive lending, low margins and credit standard, Agarwal told CNBC-TV18.
The less capitalized banks needs to first focus on increasing profitability rather than relying on government capital, he said. It is important to look at the extent of government's infusion as well as the book value of banks. Banks like SBI, which have shown good profitability and relatively better asset quality in recent quarters, should be preferred.
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