Increase in capital base: The move will shores up banks capital base indirectly and will clean up the banks books and get them to lend more.
Employment generation: Enhanced financing access will directly benefit micro, small and medium enterprises (MSMEs) and give a boost to employment generation.
Increase of private investment: Credit growth at the end of September 2017 was 7% compared with 10% a year ago. Bolstering this is key to lifting private investment so as to revive growth.
Attractive proposition: The Rs 2.1 lakh crore capital infusion plan will also make banks more attractive to equity investors to raise the said capital.
Challenges
Fiscal deficit: Recapitalization will increase the fiscal deficit of the government and may lead to possible downward revision of fiscal rating by the rating agencies as they insist on factoring such moves in assessing a country's fiscal deficit.
