Govt said to cut bank capital infusion for this fiscal because of slow loan growth

The govt, which had promised to inject Rs25,000 crore into the banks in the fiscal ending March, has decided to defer Rs2,100 crore of the pledged amount into next fiscal


File photo. Finance minister Arun Jaitley told lawmakers during the Union budget that more funds will be allocated ‘if required’. Photo: PTI
File photo. Finance minister Arun Jaitley told lawmakers during the Union budget that more funds will be allocated ‘if required’. Photo: PTI

New Delhi/Mumbai: India may cut the amount of capital it plans to inject into state-controlled lenders this fiscal year by as much as Rs7,800 crore($1.2 billion) because of slow loan growth, people with knowledge of the matter said.

The government, which had promised to inject Rs25,000 crore into the lenders in the year ending 31 March, has decided to defer Rs2,100 crore of the pledged amount into next financial year, the people said, asking not to be identified because the information isn’t public. It’s also considering the deferral of another Rs5,700 crore, they said. Finance ministry spokesman D.S. Malik declined to comment.

Shares of lenders including State Bank of India (SBI) erased gains. Credit expansion has been the missing link in Prime Minister Narendra Modi’s attempts to spur Asia’s third-largest economy as the state-controlled banks try to conserve capital. Loan growth fell to a 25-year low last month after the government’s shock demonetisation policy dented demand.

The government said in July that it would allocate Rs22,900 crore for 13 banks including Punjab National Bank and Indian Overseas Bank. Only about three-quarters of the money was released to the banks at the time, with the remaining Rs5,700 crore to be linked to factors including performance, efficiency and growth of credit and deposits.

Buffers sufficient

India can infuse the deferred Rs7,800 crore in the coming fiscal year, along with the Rs10,000 crore pledged for the period as part of the Union budget revealed on 1 February. Finance minister Arun Jaitley told lawmakers at the time that more funds will be allocated “if required.”

State Bank of India, the country’s largest by assets, fell 0.6% to Rs268.60 at 11:39am in Mumbai, after earlier climbing as much as 0.9%. The Nifty PSU Bank Index of 11 state-run lenders dropped as much as 1.4%. Punjab National Bank and IDBI Bank Ltd lost more than 3%.

Current capital buffers of state-run banks are sufficient to support the slow credit demand and service bonds, the people said. The Reserve Bank of India on 2 February allowed banks to use profits and statutory reserves to meet coupon payments on AT1 bonds as loss-making state lenders were struggling to make the payments.

India’s government-controlled banks are grappling with soured loans. Their gross bad debts amounted to 11.8% of total loans as of 30 September, more than double the level of private-sector peers, central bank data show. Bloomberg

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