Huge bank recapitalisation bill a fiscal risk: Fitch

Fitch Ratings has said the need to infuse capital in public sector banks is (PSBs) large enough to pose a risk to the Union government's fiscal targets, if the task falls on the latter. The Union Budget has estimated the new investment requirement at Rs 2,40,000 crore in PSBs till March 2019.

Fitch said this estimate was in line with it’s own assessment. It could be a source of fiscal slippage over the medium term, if banks’ balance sheets turned out to be in a worse condition than currently thought, it said.

On the government’s proposals to rein in the fiscal deficit, Fitch said the targets would be constructive for sovereign credit, if achieved. It said the objective to return to a seven to eight per cent annual economic growth rate and the fiscal consolidatiom path seemed ambitious. The finance minister has set a Budget deficit target of 4.1 per cent of gross domestic product for 2014-15, of 3.6 per cent for 2015-16 and three per cent for 2016-17.

The rating agency says it is unsure how the government’s targets can be met without further revenue strengthening or expenditure saving.