New Delhi: The Union Cabinet on Tuesday cleared a massive Rs 2.11 lakh crore capital infusion in public sector banks in the next two years. It will help boost the lending capacity of the banks, which in turn will add to private investments, support economic growth and create jobs.
While Rs 1.35 lakh crore will be raised through recap bonds, the remaining Rs 76,000 crore will come from other sources like budgetary support and market funds. The exact nature of recap bonds will be decided “in due course of time”. Banking reforms in lending principles to match this exercise will be also announced in the coming days.
The Cabinet, headed by Prime Minister Narendra Modi, on Tuesday also approved Rs 6.92 lakh crore investment in building 83,677-km of roads over the next five years, which will create 14.2 crore man days of jobs.
Finance Minister Arun Jaitley unveiled the massive corrective plan to address the economic slump at a press conference, held jointly with Finance Secretary Ashok Lavasa; two other secretaries of the finance ministry gave presentations on changing the course of the economy through massive public spending and a push to banks.
The focus of the new strategy is to give a big helping hand to the small and medium industries that are called MSMEs, as they have tremendous potential for job creation and can help tackle the unemployment problem, Jaitley said. He tried to blame the previous Congress-led UPA government, pointing out that the big chunk of the
NPAs (non-performing assets) arose from indiscriminate lending between 2008 and 2014 that were pushed under the carpet. He also indicated a change in the government thinking on wilful defaulters of banks saying that there is no embargo on protecting their identity, as their names are in public domain, and you can even publish their photos. He said the banking laws prevent the disclosures of “legitimate customers” but not of those who borrow and then play truant.
The presentation, which was also given to the Cabinet earlier in the day, began with Economic Affairs Secretary Subhash Garg claiming that the macro-economic fundamentals are strong. In this context, he referred to the foreign reserves crossing US $400 billion because of the “improved global trust” in the Indian economy.
Banks will have to compete for the capital investment that will come in the form of bonds of Rs 1.35 lakh crore and Rs 76,000 market borrowing, as it will depend on performance and potential of the individual banks.
Jaitley said the Cabinet decision is intended to make the public sector banks financially stable and help them come out of the rut of the NPAs and stressed assets; the other objective was to lay down a roadmap to prepare the banks for a credit take-off. The 2-year plan is actually for just one and a half year until March 2019.
