The report noted that the agenda for a revival of the banking sector must also include an aggressive roadmap for recapitalisation, incentivising public savings among others.
The forthcoming Budget 2016 is likely to set out a clear agenda for a revival of the banking sector, including setting up of a 'bad bank' and an aggressive roadmap for recapitalisation, SBI Research said in a note on Monday.
The State Bank of India (SBI) in a research note said it is "time for a bad bank" as lenders are dealing with close to Rs 6.5 lakh crore of stressed assets, which do not include write-offs of bad debt. A bad bank purchase or take over troubled loans and then attempts to restructure and manage these assets in a way that maximises their value.
The report noted that the agenda for a revival of the banking sector must also include an aggressive roadmap for recapitalisation, bringing down government ownership in public sector banks (PSBs), incentivising public savings, tax breaks for IFSC banking units and making wilful default a criminal offence.
The government must amend the tax system to ensure the country evolves into a vast integrated domestic market thus reducing its dependency on rest of the world for growth, the report added.
It further said the government should make a clear communication that it is committed to the path of fiscal consolidation and added that the effective fiscal deficit for the financial year 2016-17 may be set at 3.8% of gross domestic product (GDP).
Regarding the Reserve Bank of India's (RBI) monetary policy stance, it said, "We expect an aggressive monetary policy accommodation by the RBI after the Budget 2016 and it could be more than 25 basis points."
Meanwhile, the RBI Governor Raghuram Rajan on February 2 left the key interest rate unchanged citing inflation risks and growth concerns, while pegging further easing of monetary policy on the government's budget proposals.
The Finance Minister Arun Jaitley will present the Union Budget statement on February 29.
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