Definition
Bank Recapitalisation
Bank recapitalisation is the infusion of fresh capital into public sector banks, often by the government, to shore up their balance sheets and lending capacity.
When bad loans erode a public sector bank's capital, it may fall below regulatory minimums and curb lending. The government, as majority owner, then injects recapitalisation capital, at times using specially issued recapitalisation bonds that limit the immediate cash impact on the Budget.
Recapitalisation restores banks' ability to lend and meet capital norms, supporting credit growth. It is closely linked to the broader clean-up of bank balance sheets alongside the IBBI-led insolvency process for resolving large stressed loans.
Related terms
- Off-Budget BorrowingOff-budget borrowing is debt raised by public sector entities on behalf of the government that does not appear in the headline fiscal deficit.
- Reserve Bank of India (RBI)The RBI is India's central bank and monetary authority, responsible for issuing currency, setting policy rates, regulating banks and managing the government's debt.
- IBBIIBBI is the Insolvency and Bankruptcy Board of India, the regulator that oversees the insolvency resolution ecosystem under the Insolvency and Bankruptcy Code.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.