The International Monetary Fund on Thursday welcomed the Indian government’s move to inject Rs 2.11 lakh crore into the system to recapitalise public sector banks, but asked it to restructure state-run banks and reduce its stake in them.

The international organisation, in its “Financial System Stability Assessment” report for India, pointed out that investment in India had dropped reduced because the country’s economic growth had slowed down and banks were dealing with a high volume of non-performing assets.

The IMF recommended that in addition to recapitalising public sector banks, the Centre should improve corporate governance and increase private-sector participation in bank capital. The report also recommended that India undertake “a cautious reduction” in the minimum amount of investment in government securities that banks are required to hold – known as the statutory liquidity ratio.

The international organisation also suggested granting the Reserve Bank of India greater independence and more supervisory powers to regulate state-run lenders.