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“There is also a differential approach which one is envisaging where performance and potential of each bank and their regional characters, national character… internationally who can be the big one can all be factored in,” said Rajiv Kumar, secretary, department of financial services.



The government said the focus will be on prudent and adequate credit and criticised indiscriminate lending under the previous United Progressive Alliance government that led to the bad loans problem.



Public sector banks have been plagued by the highest stressed asset ratio since 2000 that’s eroded capital buffers and curtailed lenders’ ability to offer credit.





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The Centre announced a .Rs 2.1-lakh-crore capital infusion plan for state-owned banks and an ambitious road development programme to boost the economy, which it said was “poised for takeoff” after short-term disruption caused by structural reforms.Banks burdened by bad loans will get .Rs 1.35 lakh crore from bonds, .Rs 18,000 crore from the Budget and raise the remaining.Rs 58,000 crore through share sales. Fitch Ratings estimates India’s banks will need nearly $65 billion in bank capital by March 2019.The capital infusion announced by the government amounts to about half that. ET had first reported on the capitalisation bonds plan on September 13.The capital infusion programme that seeks to clean up banks’ books and get them to lend more, will run over the current fiscal and the next and will be bolstered with further reforms to make lenders more accountable.Credit growth at the end of September was 7% compared with 10% a year ago. Bolstering this is key to lifting private investment so as to revive growth.The Rs 6.92-lakh-crore, five-year roads programme approved by the cabinet on Tuesday, which includes the Bharatmala project, seeks to generate 142 million mandays of work and addresses one of the biggest criticisms against the government — that not enough jobs are being created.Finance minister Arun Jaitley said the measures evolved after detailed discussions within the government as well as with Prime Minister Narendra Modi. India’s economy is projected to slow to 6.7% in the current fiscal, according to the International Monetary Fund, after first-quarter growth dropped to a three-year low of 5.7%.“Strengthening banks will lead to more jobs, more growth and more investment,” he said. “The decision to recapitalise PSBs (public sector banks) with Rs 2.11 lakh crore will address the bank balance sheet problem and push growth forward.”He characterised the measures as a bold step by the cabinet to address economic growth.The recapitalisation of state-owned banks would be followed by a series of reforms to make them more accountable, he said, without giving any details.“Along with this there will be banking reforms as well… so that this situation does not come again that was there from 2008 to 2014 that you indiscriminately gave loans,” he said.Details of the bonds will be announced later.The government said the impact of the capitalisation on the fiscal deficit will depend on the nature of the bonds and who issues them, also signalling that this could be routed through quasi government institutions.“This will depend on the nature of the bonds itself, this also will depend on the manner in which they are dealt with… who is issuing the bonds and what is the nature of the bonds,” Jaitley said, while adding that the government was committed to fiscal consolidation.“We already made it clear that the last three to four years the glide path of the fiscal deficit will continue to be maintained.”The government has pledged to stick to a fiscal deficit target of 3.2% of GDP for FY18, which some experts say could come under pressure. Chief economic adviser Arvind Subramanian said the spending would be “below the line” as per IMF norms and not add to the fiscal deficit number.Though the capital infusion will be spread over two years, the bonds are likely to be frontloaded and be completed over the next two quarters to get things moving quickly.The government has set aside Rs 10,000 crore for banks this year, which is not likely to be increased, which means the remaining Rs 8,000 crore will come next fiscal.The government holding in banks can fall to as low as 52%, Jaitley said, adding that stake sales in state-owned banks will become attractive after recapitalisation.The government said capitalisation will help create more jobs, and spur growth and investments by creating bigger and stronger public sector banks.The government indicated that not all state-run banks will be equally supported.Non-performing assets of banks have increased to Rs 7.33 lakh crore in June from Rs 2.75 lakh in March 2015. Jaitley said enhanced financing access will directly benefit micro, small and medium enterprises (MSMEs) and give a boost to employment generation.A trade receivables electronic discounting system for public sector units (PSUs) will be created in 90 days to ensure MSMEs get their receivables in time or are able to leverage this with banks.“This milestone announcement on recapitalising banks in one go is a bold and courageous move and was indeed the need of the hour,” said Rajnish Kumar, chairman of State Bank of India (SBI), India’s largest bank.“There might be a two-three month lag but the announcements made today by the government will lead to credit offtake and increased economic activity.”The measures will get private investment going, said Confederation of Indian Industry directorgeneral Chandrajit Banerjee, welcoming them.“The government has imparted a huge boost to bank recapitalisation with a proposed amount of Rs 2.11 lakh crore which is likely to kickstart the credit cycle and facilitate private investments,” he said.“We are especially pleased with the announcement of recapitalisation bonds, which CII had recommended strongly, among other measures.”Jaitley said there was need to increase public investment and Rs 7 lakh crore for road expansion will generate employment opportunities.Apart from Bharatmala, the government is also focussing on providing 20 million houses under the ‘housing for all’ scheme. This will entail a total expenditure of Rs 14 lakh crore.Bharatmala is the second-largest roads project after the 50,000-km National Highways Development Project and aims to improve connectivity in border and other areas.This will include economic corridor development aimed at faster movement of cargo.