Centre now seeks Parliament approval to infuse Rs 20,000 crore via recapitalisation bonds

Finance Minister Nirmala Sitharaman tabled a supplementary demand for grants in Parliament, which reflects the additional expenses sought by various ministries over and above the amount allocated in the Budget

The Finance Ministry on September 14 sought Parliamentary approval to infuse Rs 20,000 crore into public sector banks (PSBs) via recapitalisation bonds.

While capital infusion through bonds will not affect the fiscal deficit in the current financial year since there is no cash outgo, the step assumes significance as capital infusion will offer support to state-owned lenders to handle the country’s deepening COVID-19 crisis, which has put both borrowers under pressure as well as increased the threat of rising non-performing assets (NPAs), Mint reported.

Finance Minister Nirmala Sitharaman tabled a supplementary demand for grants in Parliament, which reflects the additional expenses sought by various ministries over and above the amount allocated in the Budget. This also reflects on the current spending appetite of the government.

In July, the Reserve Bank of India (RBI) said the problem of bad loans plaguing the Indian banking sector could worsen towards the end of the ongoing fiscal. The central bank said the gross non-performing assets (GNPA) ratio of the country's scheduled commercial banks (SCBs) may increase to 12.5 percent by the same period next year from 8.5 percent in March, under the baseline scenario.

In the wake of the coronavirus pandemic-induced recession, the finance ministry has sought Parliament's approval for gross additional expenditure of Rs 2.36 lakh crore, of which the net cash outgo would be to the tune of Rs 1.67 lakh crore.

The gross additional expenditure, matched by savings of the ministries and departments by enhanced receipts/recoveries, aggregates to Rs 68,868 crore.

"Our baseline expectation is now that the Centre's fiscal deficit will widen to at least Rs 14 lakh crore, or 7.4 percent of gross domestic product (GDP), in FY21," said Aditi Nayar, Principal Economist at domestic rating agency ICRA.