Finance Minister Arun Jaitley on Saturday said the credit growth in the banking system has started improving slowly and the capital infusion in the public sector banks will enable banks to expand lending going forward. Jaitley added that the “green shoots” in the economy are now visible after a series of structural reforms.
“The last few data that has come out has shown credit growth has moved up and once this infusion of capital takes place into the banking system, credit growth will further move up,” Jaitley said at an event on the occasion of 75th foundation day of state-owned UCO Bank.
He said India was the only country to have the courage to implement structural reforms, which created a temporary challenge but will help the economy in medium and long run.
Structural moves such as demonetisation, followed by roll out of the Goods and Services Tax, resulted in Indian economy losing its growth momentum. The first advance estimates of the Gross Domestic Product released on Friday pegged growth at 6.5 per cent in 2017-18.
Meanwhile, Department of Financial Services Secretary Rajeev Kumar said earlier in the day on Saturday that credit growth has picked up in December. “Sustained momentum post PSB recap decision – Banking sector posts double digit (10.7% Y-o-Y) growth in Dec’17, up from (7.2% Y-o-Y) in Oct’17,” Kumar said in a tweet. As on December 22, the outstanding bank credit grew to Rs 80.96 lakh crore — up 10.7 per cent year on year as compared to growth of 4.7 per cent during same period in the previous fiscal year, as per the RBI data.
Jaitley said the capital infusion will help sustain economic growth but these funds need to be used judiciously. “The taxpayers of India are all making a sacrifice to keep you (banks) in good health, so this money which is being infused is money which could have been used for other social purposes,” he said.
The government this week announced that it will inject Rs 80,000 crore of capital in PSU banks through issuance of recapitalisation bonds by March-end 2018. The government last October announced a plan to infuse Rs 2.11 lakh crore of in the public sector banks over a period of two years. Out of this, Rs 1.35 lakh crore will be through the recapitalisation bonds, while remaining Rs 76,000 crore will be from raised by banks market and provided by the government through budgetary support.
The amount of capital infusion will be higher than the Rs 79,700 crore provided by the government in the eight year period between 2007-08 till 2014-15. Capital infusion became important as the banks faced a mountain of non-performing assets (NPAs), requiring resolution through haircuts. State-owned banks NPAs have increased to Rs 7.33 lakh crore as of June 2017, from Rs 2.75 lakh crore in March 2015.