Rs 2.11lakh-cr push for NPA-hit banks

Marie Harrington
October 25, 2017

Under fire for the under performing economy, the Narendra Modi government on Tuesday announced a Rs 2.11 lakh crore plan to recapitalise public sector banks over the next two years in an attempt to clean their books and revive investments.

Of the total, an unprecedented Rs 1.35 lakh crore is expected to come in the form of recapitalisation bonds while the rest will come as budgetary support from the government and through sales of stake by the banks themselves.

India has remained one of the fastest growing economies in the world for the past few years, and there are strong macroeconomic fundamentals, Union finance minister Arun Jaitley said at a press conference.

Banerjee said the government's decision to enhance spending on roads and highways in a strategic manner including port connectivity, border and cross-border roads will have a "big multiplier impact" on economic growth.

Calling the step as "bold", Finance Minister Arun Jaitley said it was one of the many steps being taken to bring in reforms in the country's ailing banking system.

Economists agreed the impact on fiscal deficit will depend on how the bank recapitalisation is executed.

Finance ministry said that the domestic investment of the private sector continued to be affected by the growing contamination of loans advanced in the past, which have now become unsustainable.

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In addition to repairing their balance sheets, the banks also need billions of dollars in new capital to meet global Basel III banking rules, due to fully kick in by March 2019.

Finance ministry secretaries are likely to be present at the announcement, which comes after a meeting which was attended by top officials on Tuesday, The Financial Expressreported. He said banks would get Rs 18,000 crore under the Indradhanush plan over the next two years. He said that the late fee which has been already charged to businesses will be credited back to taxpayers' accounts.

The bank recapitalisation plan announced by the finance minister neither has a roadmap nor a timeframe, he said, asking the government to do a reality check and share a targeted framework of bank recapitalisation rather than engage in "hyperbole and high-sounding syllables".

Taking the stage from Finance Minister Arun Jaitley, the Secretary of Department of Economic Affairs (DEA) Subhash Chandra Garg claimed that there is a very low level of current account deficit which ranges less than around 2%.

NC Saxena, former member secretary of the erstwhile Planning Commission? said that the banking sector is just part of the problem.

The requirement has left some of the banks, which account for about 70 percent of India's outstanding loans, historically less capitalized than privately owned peers, obliging the government to support them.

India's banks have been plagued by the highest stressed asset ratio since 2000 that have eroded capital buffers and curtailed lenders' ability to offer credit.

Other reports by TheSundaySentinel

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