C. Rangarajan says some effects of demonetisation will not go away even as sectors like real estate will have to rethink their business models
Hyderabad: Former Reserve Bank of India governor C. Rangarajan on Monday said banks cannot escape from the responsibility of controlling non-performing assets (NPA) in their balance sheets.
At a panel discussion on ‘Union budget-2017’, organized by ICFAI Foundation for Higher Education, Rangarajan also said that though the adverse impact of demonetisation will wear off as the currency availability improves, some effects will not go away even as sectors like real estate will have to rethink their business models.
“The banking system is undoubtedly under stress. How to resolve that particular problem is only through capitalization. Please remember even in good old Basil-I, the capital is 8% of the risk weighted assets. So Rs10,000 crore (capital infusion to banks in 2017-18 as mentioned in the budget) should not be compared with Rs1 lakh crore or Rs2 lakh crore," he said.
“I think that the general scene is that the capital provided is not adequate...I think this cannot let the banks escape the responsibility for the non-performing assets that they have in their asset portfolio. It is best to take steps to ensure that they collect as much as possible from the non-performing assets," Rangarajan said, when asked about Rs10,000 crore capital infusion for banks next year would be sufficient in the wake of mounting NPAs.
Earlier, giving his opinion on the recent budget speech by finance minister Arun Jaitley, the former chairman of Economic Advisory Council to prime minister said the budget is well intentioned, and actions should match the intentions.
“The adverse impact of demonetisation will wear off as currency availability approaches normalcy. But some affects will not go away. Sectors like real estate will have to rethink of how to run their businesses," he opined.
Rangarajan said the revenue projections in the budget have been done conservatively and, therefore, will hold. According to him, the budget acted prudently to keep the fiscal deficit at 3.2% of the GDP in 2017-18, which is lower than 3.5% during the current fiscal and slightly higher than 3% which was indicated earlier.