New Delhi: In a push to boost growth via bank lending, the Narendra Modi government on Tuesday announced a Rs 2.11 lakh crore recapitalisation plan for public sector banks. Finance Minister Arun Jaitley said the mega recapitalisation will be complemented by a series of banking reforms so that non-performing assets (NPA) crisis doesn’t hit Indian banks in the future.
In a 90-minute long press briefing, top bureaucrats led by FM gave detailed presentations highlighting that fundamentals of Indian economy were strong and government’s infrastructure push and banking reforms would lift the economy, creating millions of jobs.
“We need to step up public expenditure. Our measures will boost infra spending in a big way… There is a public sector bank capitalisation plan of 2.11 lakh crore. Public sector banks have adequate lending capacity now, post demonetisation. It was decided that a bold step needs to be taken by the government to recapitalise banks,” Jaitley told reporters.
While Rs 1.35 lakh crore will be raised through recap bonds, remaining Rs 76,000 crore will come from other sources like budgetary support and market raising. The FM said that the exact nature of recap bonds will be decided “in due course of time”.
He said whether or not recap bonds will impact fiscal deficit is a function of what the nature of the bond will be and which agency issues the bonds. “But even if it is a part of the fiscal deficit, it will be in the larger interest of the nation.”
Earlier during the presentation, economic affairs secretary SC Garg said Rs 7 lakh crore will be invested in road infrastructure over the next five years, adding that the government’s Bharatmala programme will entail the construction of 34,800 km roads across the country.
Garg said inflation was not likely to rise beyond 4% and the current economic slowdown was bottoming out. He added that fiscal deficit was under control and that the government was unlikely to overshoot its target of 3.2% fiscal deficit at the end of 2017-18.
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