Sanjeev Sanyal, the principal economic adviser in the finance ministry, on Wednesday expressed hope that a major portion of the banks' bad loan problem will be resolved by the end of the fiscal.

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The Reserve Bank has already identified 50 large stressed accounts that account for two-thirds of the over Rs 8 trillion dud loans and banks have started resolving these assets accounts through the bankruptcy code.

"I think by the end of this year or early next year, a substantial proportion of this (NPA resolution) will be in the process, if not already resolved, in some form. We aren't attempting (resolving) thousands of NPA accounts, but only these 50 cases which is two-thirds of the overall problem," Sanyal said at a capital market conference here today.

"Yes, we recognised that it's painful right now, not only for those 50 companies, but for everybody else because the banking system itself has stopped expanding as a result of this and it has stalled the wider economy. We think this clean-up is necessary and is well underway," he said.

Sanyal said after the clean-up, the government will know the recapitalisation amount required for the banks.

"We happen to have a feel of what the recapitalisation numbers are. Let me assure you that they are large, but not catastrophic," he said.

Sanyal, who joined the finance ministry from Deutsche Bank, further said there are many ways in which bank recapitalisation can be done.

"We do not have to fill the entire hole; some of it is already filled with provisioning and some part would be filled through recoveries. We only need to recapitalise to the extent that is required and for that there are several options, including everything from the budget, to selling down the very large stake in many of these banks that government owns," Sanyal said.

He said currently the priority of the government is to clean up banks' balance sheets and then it will look into other matters such as privatisation.

"For the time being, I think a major clean-up is what has to be done first. Even if you wanted to sell them you cannot do it right now. So, let's clean them up first, expand them, get them healthy and then we can have discussions on their privatisation.