Now the development takes centerstage with Modi government

Proposed injection of Rs 2.11 lakh cr as recap bonds in capital-starved PSBs will act as a force multiplier for their growth needs. It will help in accelerating their tepid credit growth which was constrained due to lack of adequate capital and arrest loss of market share verses well-capitalizsed private sector banks & NBFCs.
As per Ajay Bodke (CEO & Chief Portfolio Manager PMS Prabhudas Lilladhar ) “the govt should structure the bonds as zero-coupon bonds with a very long maturity of say 15 to 20 years and a one-time bullet repayment at the end of the maturity period”
The long maturity would provide relief to banks from providing for annual interest payments.

The infusion must strictly be in line with objective performance- improvement criteria. Markets would certainly give a thumbs up to this bold initiative and kickstart a virtuous cycle leading to rise in PSB share prices. This in turn would make it easier for them to raise equity capital from the market.
The second initiative- Govt’s Rs 14 lakh crore capital expense plan over the next 5 years in key infrastructure will have a significant multiplier impact on aggregate demand and employment. Sectors such as Construction, Engineering/ Capital goods, Cement, Steel etc will benefit from this massive capital spend. This initiative – in our believe has come is late by at ;east a year as we had expected it to be launched in 2016 itself
The third reform will certainly help small businessmen in a big way. In India government is among the worst pay masters when it comes to actual release of payments. The credit cycles are often stretched. By forcing large PSUs to register themselves on TReDS platform and clear their dues to MSMEs within 90 days it will address one of their biggest concerns. Govt should follow this up by appealing to all Industry bodies like CII, FICCI to ask their members from the private sector to follow suit immediately. This will make overall business in India much more efficient and will drive down costs.

While the efforts by government do aspire confidence, a caution should be sounded. All of the yesterday’s initiative will take their sweet time to bloom. Each of them will create their own set of problems and the resolution itself will complicate the process that they are supposed to simplify. Having said that this is a right step in the right direction.

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