Arun Jaitley may make big announcements shortly; public sector banks' recapitalisation likely

Finance Minister Arun Jaitley

Finance Minister Arun Jaitley

Noting that the money given for recapitalisation of banks will increase the fiscal deficit, he said, "This is a desperate move by a finance minister groping in the dark as demonetisation and GST failed to bring in the promised Rs 4-5 lakh crore".

The public sector banks' recapitalisation comes amid increase of their non-performing assets (NPAs), or bad loans, to 82 per cent of their stressed assets, Kumar said.

The IMF said in its latest World Economic Outlook that India's economic growth for 2017 and 2018 will be slower than earlier projections.

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%. "Domestically we have different standard within India", he said, adding that they will benefit the economy.

Besides bank recapitalisation, the Union Cabinet, at a meeting chaired by Prime Minister Narendra Modi, also approved the ambitious BharatMala Project that entails an expenditure of almost Rs 7 lakh crore to build 83,677 kms of roads over the next five years.

"When results of the GDP of the first quarter came out then I had said that we will be ready for the response", said Jaitley while adding that there have been a lot of discussions and reviews of the economy in the past few weeks within the ministry.

Asked if the issuance of these bonds will impact the government's fiscal deficit target, Jaitley said it will depend on the nature of the bonds and the manner in which they are dealt with.

Mohan Guruswamy, an economist in New Delhi, said the government should have taken action three years ago to revive the banking sector.

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The money for the recapitalisation will come from a budgetary provisions of Rs 18,139 crore, recapitalisation bonds to the tune of Rs 1,35,000 crore, and the balance through raising of capital by banks from the market while diluting government equity (estimated potential Rs 58,000 crore).

The government came out all guns blazing, defending the economic measures it has taken in recent years after concerns raised by the opposition on GDP growth.

Of that, Rs. 1.75 lakh crore relates to just 12 cases, which have been referred to National Company Law Tribunal.

Major rating agencies welcomed the move, as did the chairman of top lender State Bank of India, Rajnish Kumar, who called it "bold and courageous".

Chandrajit Banerjee, Director General, CII, said: "The government has imparted a huge boost to bank recapitalisation... which is likely to kickstart the credit cycle and facilitate private investments..."

Further banking reforms on cards.

Effective and targeted government spending is the main priority of the government.

Also, a massive bank recapitalization program has been approved. This will improve lending capacity of banks. The state bank index closed 3.8 percent higher.

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