Capital Infusion in Banks to Help in Credit Growth: Arun Jaitley

Finance Minister Arun Jaitley today said the government has decided to recapitalise public sector banks (PSBs) to enhance credit growth and job creation.

The government has decided to infuse Rs 2.11 lakh crore capital in PSBs in the next two years through budgetary provisions of Rs 18,139 crore, Rs 1,35,000 crore through re-capitalisation bonds, and the balance through raising of capital by banks from the market, Jaitley said.

This will help strengthen the banks, which are the key pillars of the economy, he said in his opening remarks during the 7th pre-Budget consultation meeting here with representatives of banks and financial institutions.

He said capital adequacy of the banks will help in credit growth and job creation, among others.

After the meeting, Axis Bank Managing Director Shikha Sharma said bankers discussed tax treatment for reduction in debt.

“If a buyer is going to take a haircut of the debt, the debt is going to be written off the balance sheet. Just as it is allowed under Sick Industrial Companies Act, the tax break should be allowed on that,” she said.

Yes Bank Managing Director Rana Kapoor made a case for permitting bank financing for domestic merger and acquisitions of weak companies with good underlying assets to accelerate NPA resolution, with adequate regulatory safeguards.

“Current RBI guidelines…preclude such financing, except in infra sector. Given their significant social and economic value, capital market exposure must also be precluded,” Kapoor said.