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Bank recapitalisation positive for growth, supportive for rupee: Goldman

The government unveiled a Rs 2.11-lakh crore two-year road map to strengthen NPA-hit public sector banks, which includes re-capitalisation bonds, budgetary support, and equity dilution

Press Trust of India  |  New Delhi 

Illustration: Ajay Mohanty
Illustration: Ajay Mohanty


The government's bank capitalisation programme is positive for the economy, will lower the drag on bank credit growth and will be supportive for the rupee in the medium term, says a report.

According to the global financial services major, the sector recapitalisation is aimed at significantly reducing the drag on PSU on credit growth and will also boost investment and growth.

The yesterday unveiled a Rs 2.11-lakh crore two-year road map to strengthen NPA-hit public sector banks, which includes re-capitalisation bonds, budgetary support, and equity dilution.

"Using the leverage targeting nature of Indian banks, we estimated that every incremental Rs 100 billion of bank capital infusion by the has the potential to increase credit and growth by 1 percentage point and 0.5 percentage point, respectively," said in a research note.

The capital infusion of entails mobilisation of capital, with maximum allocation in the current year, to the tune of about Rs 2,11,000 crore over the next two years, through budgetary provisions of Rs 18,139 crore, and recapitalisation bonds to the tune of Rs 1.35 lakh crore.

"Given the sheer magnitude of this recap package and the significant implied easing in credit conditions, as credit and investment growth rebound, we would expect a re-rating of growth expectations in India in coming quarters," the report said.

Moreover, a substantial improvement in growth outlook is likely to be positive for equities and supportive of the rupee in the medium term.

On the fiscal position, the report said "the near-term risks are clearly skewed towards a deterioration in the fiscal position, medium-term fiscal fundamentals could actually improve".

According to the report, the key downside risks include any delay in actual implementation of recapitalising or other sector reforms that the intends to announce proving less effective.

First Published: Wed, October 25 2017. 15:33 IST
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