Though one could feel that the quantum of recapitalization for banks that Mr. Arun Jaitley has announced in his Budget speech is too little given their stress levels, there are a number of welcome initiatives. For one, there is a commitment from him to introduce a comprehensive bankruptcy code in the budget session of Parliament. This will be a big boon for banks, and go a long way in helping them to speed up the recovery of bad assets. For another, he has decided to allow sponsors to hold up to 100% in asset reconstruction companies (ARCs). At the moment, no individual foreign entity can hold over 49 per cent in an ARC. A sponsor is one who holds at least 10 per cent stake in an ARC. Letting sponsors to have 100 per cent stake will spur foreign entities to take a big plunge in the Indian `bad asset' market.
While assuring further funds if required, Mr. Jaitley has also hinted at the possibility of consolidation in banks. Also, he has indicated the Government's willingness to pare its holding in IDBI.
In tandem with the decision to set up a monetary policy committee and the banks' board bureau, Mr. Jaitley appears to be moving towards prescribing a holistic cure for the ills of the public sector banks.
