The Fiscal Responsibility and Budget Management (FRBM) Committee, headed by former revenue and expenditure secretary N K Singh, tasked with redrawing the fiscal consolidation roadmap has suggested that the Centre infuse much higher capital than the Rs.70,000 crore committed under the Indradhanush plan over a four-year period ending March 2019. The panel said the commitment by the Centre for infusing Rs.70,000 crore in four years is inadequate.
It suggested higher capital infusion at a faster pace for the state-owned banks that are grappling with huge non-performing assets on their books and further eroding their capital base.
The finance ministry has estimated banks' capital needs at Rs.1.80 lakh crore by March 2019, of which it expects banks to raise Rs.1.10 lakh crore from market and internal accruals. It noted that banks capital needs are much higher as the “NPAs of banks have increased, partly due to recognition of bad assets, affecting banks profitability and their ability to augment their capital base through internal accruals”.
One of the main reasons for the stressed assets in bank balance sheets is the losses of state power distribution companies where the committee suggested key changes in the Ujwal Discom Assurance Yojana (UDAY). The report said states should take over 100 per cent of the debt of their respective discoms, instead of the earlier provision of 75 per cent. This will further reduce the interest costs for the discoms and raise their average revenue realised (ARR).
“There should not be further bank financing of operating losses of discoms and instead, state governments should make a firm commitment to underwrite the shortfall in the revenue of discoms as equity or interest free loan on an annual basis,” the committee said in its report.
Noting that the banks' stressed assets have risen to 9.1 per cent by September 2016 from 5.1 per cent in September 2015, the Committee said, “the newly designed UDAY scheme aims to improve the financial health of power utilities, but it solves only the debt ‘stock’ problem whereas the flow problem continues to exist.”