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Soumik Dey
Soumik Dey

ECONOMY

Financial institutions in good health, says FinMin official

Ministry-of-Finance-Reuters [File] Provisions in budget for bank recapitalisation to boost demand going ahead, says Finance ministry official | Reuters

The government is confident that its Rs 2.1 trillion bank recapitalisation plan would be the one medicine that would be required going ahead to boost demand in the economy.

"We had done the Asset Quality Review of stressed assets which has now gone up to Rs 7.7 trillion. A tremendous amount of provisioning has been done by banks for this," said Rajiv Kumar, secretary, Department of Financial Services, speaking to reporters.

According to Kumar, the Insolvency and Bankruptcy Code, which has set out time-bound resolution plans for companies seeking closure, would become operational soon.

"The government is only aiding the banks to resolve a capital adequacy situation. Our financial institutions are in good health and government is ensuring they remain so," said Kumar. The Insolvency and Bankruptcy Board is currently working to set out exit plans for companies seeking closure.

Kumar's colleague, Subhash Chandra Garg, secretary department of economic affairs feels that the bank re-cap would provide a big boost to the economy.

"Once this is done (bank recapitalisation package) the economy could be back in track in a very short time. Bank's risk appetite could go up and this would drive demand as well," said Garg.

"Definitely this is a robust solution to prevent having bad banks," Garg said. "This time, we have set out parameters which would make banks performance based as well as resposibility-oriented," said Garg.

The economic affairs secretary said that the government's increased spending on health and other welfare measures for the aged needs to be adequately funded.

He said, government would continue to seek funds for its infrastructure projects and others from the markets. Funds raised from sale of sovereign bond borrowings has become the main cash flow for the government over the years. Banks are the main buyers of these government securities and their existence become crucial for credit flow to fund government projects.

"A large number of stressed assets are in the micro, small and medium enterprise sector. We are trying to resolve those as well," Garg said. The government has this time dedicated a vertical in the ministry looking at stressed assets of MSMEs.

"We will provide them with all kind of help, be it for credit or any professional help to resusciate them going ahead," Garg said spelling out the finance ministry's resolve to aid the economy.

The government has earmarked Rs 81,110 crore for banks in this year's budget, as a part of the recapitalisation plan. On earlier budgets also, finance minister Arun Jaitley had announced a largesse to banks ranging from Rs 15,000 crore to Rs 25,000 crore.

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