Interest burden of recap bonds to be about Rs 9,000 cr: CEA

Chief Economic Adviser Arvind Subramanian today said the interest burden of Rs 1.35 lakh crore recapitalisation bonds on the government would be about Rs 9,000 crore but this cost can be offset by spur in economic activities due to increased credit and private investment.

"First, true cost of issuing the Rs 1.35 lakh crore recapitalisation bonds is the annual interest payment, about Rs 8000-9000 crore," he said in a late evening tweet.

These bonds were first introduced in 1990s to recapitalise banks, through a route which was cash-neutral.

"But cost can be offset by confidence impact of addressing critical bottleneck, increasing credit, private investment, growth. Rest is accounting," he said.

Earlier in the day, Finance Minister Arun Jaitley unveiled an unprecedented Rs 2.11 lakh crore two-year road map for strengthening NPA-hit public sector banks, which includes re-capitalisation bonds, budgetary support, and equity dilution.

The capital infusion, Jaitley said, will be accompanied by reforms to enable the state-owned banks to play major role in the financial system and give a strong push to the job- creating MSME sector.

Giving details, Financial Services Secretary Rajiv Kumar said the government had decided to take a massive step to capitalise PSBs (public sector banks) in a "front-loaded" manner, with a view to support credit growth and job creation Jaitley said the details of the re-capitalisation bonds would be determined in due course.

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

The balance will be raised by banks from the market by diluting government equity. The government's equity dilution will help banks to raise about Rs 58,000 crore. The government equity, as per the current policy, can come down to 52 per cent in state-owned banks.

(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)