Rs2.11 trillion bank recapitalisation plan sufficient to tackle NPAs: SBI report
New Delhi: The government’s Rs2.11 trillion bank recapitalisation plan is sufficient to tackle the bad loan problem and will also give a push to economic growth, says an SBI research report.
On Tuesday, finance minister Arun Jaitley unveiled the Rs2.11 trillion bank recapitalisation plan, which includes issue of recapitalisation bonds worth Rs1.35 trillion while the rest will be raised through budgetary allowances and fundraising by the banks from the capital markets.
“If the structure of 1990s is adopted (for issue of recapitalisation bonds), then this would not alter any fiscal math,” said SBI in its report Ecowrap. An interest cost of Rs8,000 crore per year is only 0.07% of India’s gross domestic product (GDP) and 1.6% of the total interest payment on revenue expenditure of the government, it said.
Recapitalisation bonds has precedence not only in India but also in many other countries, including Chile, Philippines, Finland, Hungary, Argentina, Korea and Malaysia. India had used this tool before in 985-86 to 2000- 01, wherein the government recapitalised public sector banks with the total amount of Rs20,446 crore. “The cost is very negligible, given the current context and the huge multiplier impact. Gross domestic product (GDP) ratio will increase by 0.8% (based on revised nominal GDP figures as released by CSO),” the SBI report said.
After provisioning for bad loans, the SBI report believes there may still be around Rs1 trillion in the bank recapitalisation outlay available for lending. “The resultant multiplier impact of Rs1 lakh crore could unleash at least Rs3.3 lakh crore and that could go up to Rs10 lakh crore additional infusion in the economy. This could concomitantly push up the GDP,” the report said.
According to the latest figures by the finance ministry, non-performing assets (NPAs) in the banking industry have increased by Rs4.55 trillion from 2014-15 to June 2017. Provisions against them in the same period stood at Rs3.79 trillion. So, the amount of bank recapitalisation of Rs2.11 trillion seems sufficient for tackling the problem of stressed assets, the SBI report said.