Mumbai, Oct 29 (PTI) The government's recapitalisationplan for public sector banks is likely to propel credit growthby up to 700 basis points to 15 per cent and as consequencepush up GDP numbers to 7 per cent in the next fiscal, says areport.
The government recently unveiled a Rs 2.1 lakh crore,(representing 1.2 per cent of GDP), recapitalisation packagefor public sector lenders which will be injected over twoyears.
The capital infusion will be funded through three sources-- Rs 18,139 crore from budgetary provisions, Rs 58,000 crorefrom the market as the government dilutes its stake and Rs1.35 lakh crore through recapitalisation bonds issued by thegovernment.
According to the report by brokerage firm Ambit Capital,lending growth at across banking system was estimated to be at8 per cent in 2018-19. However, with recent recapitalisation(recap) plans in play, the credit system is expected to growto 12-15 per cent during the time period under review.
"This in turn is likely to improve prospects of growthfor the industrial sector as well as the services sector,thereby propelling headline GDP growth to 7 per cent year-on-year in FY19 from 5.8 per cent in FY18," the report said.
As per Ambit estimates, industry is likely to see a 7 percent growth in 2018-19 from 5 per cent in the current fiscal.
Services is projected to grow at 7.3 per cent in thecurrent fiscal and rise to 7.5 per cent in the succeedingyear.
Besides, agriculture growth is expected to get a boostfrom an estimated 1.5 per cent this fiscal to 4.2 per cent inthe next financial year.
Meanwhile, Ambit expects government to side-step fiscalprudence as it focuses on winning 14 elections in coming 18months.
"The government side-stepping fiscal prudence assumessignificance particularly because the government has alreadyspent 96 per cent of the full-year fiscal deficit, which hasbeen the highest in the past many years," it said.
Interestingly, the report noted that contrary to popularbelief among other experts, the recap plan can be viewed asbeing "fiscally neutral" only if central government's accountsare seen in isolation that is distinct from the PSUs it owns.
"If the central government as an entity is defined asbeing a separate entity which is distinct from the companiesit owns then by that definition disinvestment should also beexcluded from the central governmentÂ’s accounts," it said.
"However, if the government is defined as a largerentity, including PSUs then the bank recap bonds are clearlynot fiscally neutral," it added.
Moreover, Ambit observed that the bank recap plan willresult in additional supply of government paper irrespectiveof whether it issues this directly or indirectly.
On impact of recap plan on markets, the report said theinitiative has opened doors to a recovery in Sensex EPS(earnings per share) growth in 2018-19.
"We expect 15 per cent EPS growth in FY'19 and publishour FY'19-end Sensex target of 32,300 (1 per cent below thecurrent level of the Sensex) on the back of this," it added.
PTI SSM SM NRBBAL.
This is unedited, unformatted feed from the Press Trust of India wire.
