The government had infused extra fund in Public Sector Banks What is the impact of this decision 1 n...........

Economic Affairs Types of Banks and Banking

The government had infused extra fund in Public Sector Banks. What is the impact of this decision?

1. To hasten the process of pulling certain banks out of the PCA (Prompt Corrective Action) framework.

2. To improve the capital adequacy ratio of banks.

3. To absorb the collateral impact of stressed asset.

Select the correct answer using the codes given below

1, 2 and 3

1 and 2

1 and 3

2 and 3

First option is correct.

Infusion of extra funds will hasten the process of pulling certain banks out of the Prompt Corrective Action framework, as it will improve capital adequacy ratio of better-performing PCA banks.
The government has had to increase funding support since public sector banks were unable to raise enough funds from the equity markets due to various reasons.
This decision enables these banks to step up lending in the economy and absorb some of the collateral impact of stressed assets.
Eventually, it will contribute to overall growth of the economy.