Finance Minister P Chidambaram on Saturday said the government would stick to the borrowing programme announced in the Union Budget for the current financial year.
The government planned to borrow Rs 2 lakh crore between October 2012 and March 2013 to stick to the budgeted Rs 5.7 lakh crore for the entire financial year, he said at the inaugural session of the Bancon 2012 here.
He also claimed the fiscal deficit was likely to be limited at 5.3 per cent of the gross domestic product (GDP) in 2012-13.
On GDP growth, he said it was likely to expand by 5.5 per cent in the second quarter, compared with 6.9 per cent in the same period last year. The figure would be formally announced by the end of the month.
"When growth fell to 5.5 per cent in the first quarter, and when growth is likely to be around 5.5 per cent in the second, it goes without saying we face a difficult situation," he said.
Chidambaram's comments come close on the heels of the 2G telecom spectrum auction getting lukewarm response, fetching the government far less than the targeted Rs 40,000 crore.
His comments are likely to give some relief to the gilts market on Monday. The yield on the 10-year benchmark 8.15 per cent gilt rose to a 12-week high of 8.23 per cent on Thursday, as the market expected the government to borrow additional Rs 30,000-40,000 crore.
Dealers said the yield on the 10-year benchmark 8.15 per cent gilt might trade in the range of 8.20-8.25 per cent between Monday and Friday. There also are expectations of open-market operation purchase of gilts by the Reserve Bank of India (RBI); and, if that happens, the yield might drop to 8.15 per cent on the 10-year benchmark gilt.
Chidambaram also revived the debate on mergers of public sector banks, saying consolidation was inevitable as Indian banks were likely to vie for the top spot in the global system in the next few years. He also advised banks do not mirror one another and made it clear the Department of Financial Services (DFS) would not attempt to impose uniformity among lenders. Earlier, DFS had sent advisories to banks on various issues that evoked reactions from some of the banks.
Later he clarified while talking to reporters he had not prepared any road map for bank mergers. Asked if the government would nudge banks to merge, he said the decision to consolidate would be made by banks and their respective boards. In his earlier stint as the finance minister, Chidambaram had advocated for consolidation in the banking industry. His predecessor, now President, Pranab Mukherjee, had also made a similar proposal. In December 2009, the finance ministry had invited the chiefs of five state-run banks to get their views on consolidation. Banks, however, did not offer a concrete plan and employee unions have been resisting the idea.
New bank licences
Chidambaram said the current laws allowed the banking regulator to issue new licences, even as RBI indicated it would not, unless the Banking Regulation Act was amended.
"Let me emphasise the three powers RBI wants are already with it. It has the powers to grant banking licences. Amendments to the Banking Regulation Act are to formalise those and bring them together into the Act," he told Business Standard.
Chidambaram's comments could be seen as a growing rift between the central bank and the government over the issue of new bank licences.
Separately, he said the prime minister would hold the first meeting of the cash transfer panel on Monday, before the formal launch of the project scheduled on January 1, 2013.