Increase in cash transactions shows that the efforts of the govt to make the economy cashless unsuccessful

Expect Over Rs 1 Lakh Crore In Recoveries From Top 12 Bad Loan Accounts: Sanjeev Sanyal

Recoveries from the twelve largest bad loan accounts, sent for resolution in 2017, will help supplement government fund infusions to ensure that public sector banks are adequately capitalised, said Sanjeev Sanyal, principal economic adviser to the government of India, in an interview to BloombergQuint. However, if more capital is needed for the banks to grow, the government will provide it, he said.

Sanyal expects recoveries of between Rs 1.2 lakh crore - Rs 1.3 lakh crore from these twelve accounts, which had outstanding loans of roughly Rs 2 lakh crore. In addition, Sanyal said, the reports suggest promoters of defaulting companies have come back to repay close to Rs 80,000 crore in dues because of a tougher credit culture.

Most of these NPAs (non performing assets) have been completely provided for. So now, we’re beginning to see fairly substantial chunks coming back from the sale, liquidation etc of these assets... You will see very substantial amounts of recovery coming through, which will directly go back to the banks. 
Sanjeev Sanyal, Principal Economic Adviser, Government of India

Sanyal said the government wants public sector banks to grow again. As such, along with ‘regulatory capital’, if ‘growth capital’ is required, the government will provide it, said Sanyal.

Last year, the government had approved a Rs 2.11 lakh-crore recapitalisation package for public sector banks. Of this, roughly Rs 1 lakh crore has been used up. But the capital requirement for banks remains high. Bad loans have added up to nearly Rs 10.5 lakh crore and provisioning levels remains weak at below 50 percent.

“We do recognise that the industrial sector, particularly MSMEs need bank capital. So, we do need to get these banks expanding again. Should they need additional capital, provisions and efforts will be made to provide it,” said Sanyal.

The LIC-IDBI Deal

Commenting on the government’s decision to hand over IDBI Bank Ltd. to Life Insurance Corporation of India, Sanyal said the decision was a commercial one and was taken by the boards of the respective entities.

On Wednesday, the cabinet approved a proposal to allow LIC to raise its stake in IDBI Bank to 51 percent. This would mean that the government would cease to be the promoter of IDBI Bank and hand over management control.

“LIC has a long history of buying public sector assets, which it has then being able to make good profits from. In any case, this is a commercial decision,” Sanyal said. “It works both ways. One provides capital. The other provides a branch network.”

As per the plan detailed by an government official, IDBI would function as a subsidiary of LIC. In that case, LIC may need to reduce its shareholding in other banks. LIC holds more than 10 percent in at least six banks, according to data collated by BloombergQuint. LIC also has a substantial debt portfolio and a mid-sized lending portfolio of its own.

When asked whether LIC’s substantial holdings in the banking sector raised ‘inter-connectedness risks’, Sanyal said that LIC, by virtue of its size, is inter-connected to most parts of the economy.

LIC is the largest financial sector institution by some margin. Because it’s so large, it is inter-connected to everything. The question is - did it make a decision which is commercially non-viable? My contention is that the answer is not as obvious as many commentators make it out to be. This is not a fobbing-off of a bad asset. There is a commercial reason behind it.
Sanjeev Sanyal, Principal Economic Adviser, Government of India

State Of The Economy

Sanyal sees India being the fastest growing major economy this year, with growth rates seen in the range of 7.4-7.5 percent. There is reason to believe that the industrial economy is gathering pace based on recent economic data and indicators like car sales, said Sanyal. He added that credit growth in double digits suggests that the financial sector is also growing.

Strong monsoons and higher support prices should “feed through to the rural economy well”, said Sanyal.

A real growth rate of 7.5 percent or thereabouts is what we should expect and that remains the fastest growing major economy in the world.
Sanjeev Sanyal, Principal Economic Adviser, Government of India

According to Sanyal, while the current account deficit has widened, it is not at a level that is worrying. Foreign exchange reserves remain comfortable as well. “There's nothing to get too worried about at this stage.”

Commenting on government finances, Sanyal said the government has been fiscally prudent over the last few years. We aren't being irresponsible in any way about the fiscal picture, said Sanyal, while adding that GST collections have been “reasonably good”.

GST collections for June stood at Rs 96,483 crore. That compares with Rs 95,610 crore revenue collected for May, Rs 94,016 crore received for April, and Rs 1.03 lakh crore for March. “We have been able to lower rates because we're comfortable with the collections. Otherwise we wouldn't have cut the rates,” said Sanyal.

Watch the interview here.