Boost for India state banks
STATE Bank of India and Central Bank of India are among 20 government-run banks that will receive a 140 billion-rupee (RM7.24 billion) capital infusion to guard against soured loans in a slowing economy.
The recapitalisation of state-controlled banks will enable them to raise money through share sales, said Rajiv Takru, the Finance Ministry's banking secretary, yesterday.
The government, which had set aside funds for the infusion in the budget proposed in February, delayed the plans in July amid a slump in shares as borrowing costs surged.
The injection is part of a ministry goal to help banks boost credit and meet tighter capital-reserve requirements.
Bad debt as a percentage of Indian bank lending rose to a six-year high in June, with government-run banks holding a higher share of non-performing loans, central bank data show.
"The infusion will help as the pain in terms of profitability and bad loans is going to last for another couple of quarters," said Jisha Nair, a Mumbai-based banking analyst at BOB Capital Markets Ltd.
The government usually infuses capital into lenders by buying their shares. Rules requiring government stakes of at least 51 per cent have curtailed state banks' ability to sell shares, making them undercapitalised relative to privately owned lenders.
Capital adequacy ratios at the state-run banks based on so-called Basel II rules stood at an average 12.4 per cent as of March 31, lower than the 13.8 per cent average for all the country's lenders, Reserve Bank of India data show. Bloomberg