Mumbai: India will inject as much as Rs14, 000 crore ($2.3 billion) into state-run banks by the end of September to strengthen their risk buffers and bolster credit growth as the economy slows. Shares of banks rallied.
IDBI Bank Ltd., Bank of Maharastra, Dena Bank and Indian Overseas Bank are among the government-controlled lenders that will be provided with equity capital to bring their ratios above 8%, Rajiv Takru, banking secretary at the finance ministry, said in an interview on Tuesday. The structure of the transactions isn’t set yet, he said, declining to say how much each bank will receive.
The fresh capital will increase the ability to withstand risk at state-run banks, which account for three-fourths of India’s lending, according to data compiled by the central bank. That may boost credit growth, helping revive an economy that grew at the slowest pace in a decade in the year to 31 March.
The government, as the largest shareholder, will step in to boost capital ratios whenever required, Takru, 57, said at his office in New Delhi. We don’t want Tier-1 capital at any state-run bank to stay below 8%.
IDBI gained 3.8% to Rs73.4 by 2:50 pm in Mumbai, Dena Bank jumped 4.4% to Rs70.4 , Indian Overseas Bank advanced 3.2% to Rs49.85 , while Bank of Maharashtra gained 1% to Rs50.85.
The government will need to infuse as much as Rs91,000 crore into its majority-owned banks to comply with international standards known as Basel III rules, if it wants to maintain its stakes, Reserve Bank of India governor Duvvuri Subbarao said last year. The banks will also need to sell Rs59, 000 crore of shares to other investors, he estimated.
Finance minister Palaniappan Chidambaram announced in Feburary a plan to boost state-owned banks’ capital by Rs14, 000 crore rupees by March 2014.
Lending by banks in India grew at 13.7%, the lowest rate in at least three years, in the twelve months to 14 June, data compiled by the RBI show, as slowing economic growth curtailed demand for credit. BLOOMBERG