Mumbai: The Rs 2.11 lakh crore recapitalisation plan for state-run banks would be sufficient to tackle the problems of stressed assets and the multiplier impact of the package could be “at least an expansion of the economy by Rs 3.3 lakh crore”, a State Bank of India (SBI) report said on Thursday.
“..the refrain that package is inadequate. It is incorrect. As per MoF (Ministry of Finance), there is an increase in NPA to the tune of Rs 4.55 lakh crore from FY15 till June ’17. The increased provisioning in the time period FY15 to FY18 is pegged at Rs 3.79 lakh crore. So the amount of Rs 2.11 lakh crore seems sufficient,” the report said.
The proposed recapitalisation package has several features. Out of the Rs 2.11 lakh crore, the government would provide Rs 18,139 crore through budgetary provisions, Rs 1.35 lakh crore by recapitalisation bonds and the balance Rs 58,000 crore needs to be raised by banks from the market.
“After provision of bad assets, we believe there may still be around Rs 1 lakh crore available for lending. The resultant multiplier impact of Rs 1 lakh crore could unleash at least Rs 3.3 lakh crore and that could go upto Rs 10 lakh crore additional infusion in the economy. This could concomitantly push up GDP,” the SBI Ecowrap report said.
Recapitalisation of banks through recapitalisation bonds has a precedent not only in India but also in many other countries like Chile, the Philippines, Finland, Hungary, Argentina, South Korea and Malaysia.
Citing an example of China, the report said when its “big four” state owned banks were grappling with aggregate NPA of more than 30 per cent during 1990s, the Chinese government had injected around $33 billion of capital financed by the sale of bonds to these banks to help improve their capital adequacy ratio.
During 1986 till 2001, interest paid by the government to the nationalised banks on recap bonds works out to 0.07 per cent of GDP per annum on average. But, during the period the banks have paid dividends to government amounting to 0.06 per cent of GDP on average. So, the net impact was only 0.03 per cent of GDP on fiscal deficit or almost nil, it added.