After the Narendra Modi-led government announced a mega plan of Rs 2.11 lakh crore to recapitalise the stressed public sector banks last week, Deepak Parekh of HDFC says that it’s a “big bang” reform. In an interview to livemint, Deepak Parekh, Chairman of HDFC said, “This is an Indian TARP (Troubled Assets Relief Programme) and it has done well because this Rs 2.11 trillion is a two-year thing. So the government has taken care of not just current NPAs but 5-10% that may come up.This is a big bang reform. The equity they put in will increase value for them.”
According to Deepak Parekh, it was a necessary step. “ That was necessary. You cannot have a strong economy with these banks. You can’t have a strong bank and a weak economy; they have to go side by side. All fundamentals are good in India. This is an Indian TARP (Troubled Assets Relief Programme) and it has done well because this Rs2.11 trillion is a two-year thing. So the government has taken care of not just current NPAs but 5-10% that may come up,” Deepak Parekh told the publication.
Finance Minister Arun Jaitley announced earlier last week that Rs 2.11 lakh crore would be infused in PSU banks over two years, of which Rs 1.35 lakh crore will be through recapitalisation bonds. The remaining Rs 76,000 crore would be from the budgetary support and market raising. In the same interview, Deepak Parekh also pointed out that, this step paves the way for consolidation in the PSU banking space. “I think the banking reforms is the first step to make them viable. You will see after this, consolidation talks will start. You will also see that more equity will be sold by the government. They are already talking about Exchange Traded Fund (ETF), where they will put stocks like L&T, ITC and some of the banking shares, and float that to raise funds. Privatization of equity will come into the banking system,” he told in the same interview.
Experts point out that the government must now expedite consolidation in the public sector banks. In an interview to ET Now last week, Nirmal Jain, Chairman of IIFL said, “Along with the recapitalisation, there are two more things which are needed. One is the consolidation in PSU banks, because so many entities owned by the government are into the same business, that doesn’t make sense. The second thing needed is the autonomy of management, and upgradation of technology.”