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‘If economy is strong, why go for bank recapitalisation?’: Chidambaram targets Modi govt

Referring to Rs 2.11 lakh crore recapitalisation of ailing PSU banks, Chidambaram asked “why was the process of bank recapitalisation needed if the govt believes the economy is strong”.

Written by: India TV Business Desk, New Delhi [ Published on: October 28, 2017 20:29 IST ]
‘If economy is strong, why go for bank
‘If economy is strong, why go for bank recapitalisation?’: Chidambaram targets Modi govt

Former Finance minister P Chidambaram today questioned the Narendra Modi government over its claim that economic reforms are going in the right direction. 

Referring to Rs 2.11 lakh crore recapitalisation of ailing PSU banks, he asked “why was the process of bank recapitalisation needed if the govt believes the economy is strong”.

“Finance Minister says macroeconomics are strong. If the economy is strong, why announce 6 lakh crore Bharatmala programme? Why bank recapitalisation?” The Indian Express quoted him as saying.

The senior Congress leader also claimed that the Indian economy grew 8.5 per cent between 2004 and 2009 under the leadership of Dr Manmohan Singh. He said that this was the best ever rate in India so far. 

“But it has slowed down terribly since 2014,” Chidambaram said. 

He also choose to add that demonetisation decision and the hasty implementation of the Goods and Services Tax (GST) destroyed the economy.

Earlier this week, in a stimulus package aimed to boost flagging economic growth, create jobs and increase credit flow, the government had approved a Rs 2.11 lakh crore recapitalisation plan for state-run banks and massive road infrastructure investment of nearly Rs 7 lakh crore over five years.

Of the support to banks, Rs 1.35 lakh crore will be raised through recapitalisation bonds and the remaining sum through budgetary support and market borrowings.

This is not the first time when Chidambaram has criticised the government over its poor handling of economic affairs. On many occasion, he had warned the government over its key decisions saying “if you take right steeps, it will go up but will go down if wrong steps are taken”.

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.

According to the Ministry of Finance, there is an increase in NPA to the tune of Rs 4.55 lakh crore from FY15 till June 2017. The increased provisioning in the time period FY15 to FY18 is pegged at Rs 3.79 lakh crore. 

After government’s announcement of Rs 2.11 lakh crore recapitalisation plan, the State Bank of India, country's largest public sector lender, has released a report saying the amount seems sufficient to tackle the problems of stressed assets.

In its report, the SBI noted that 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.

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