NEW DELHI: India will boost the size of an annual cash infusion into state-owned banks this year as the South Asian nation seeks to maintain the flow of credit and bolster capital buffers after bad debts rose to a 13-year high.
The capital to be doled out in the year to March 31 will exceed the Rs79.4 billion ($1.2 billion) pledged by the government in its February 28 budget, Hasmukh Adhia said in an interview in New Delhi on June 12. The government will decide on the allocation for each bank by the end of July, he said.
The state is beefing up its allocation after central-bank data showed stressed assets at Indian lenders climbed to the highest level since 2001 and capital ratios declined. The Rs69.9 billion set aside by the government for infusions in the fiscal year that ended March was the lowest since at least 2009.
“The government has to raise the investment target as most of the state-run lenders are facing a capital shortage,” Hatim Broachwala, a banking analyst at Nirmal Bang Institutional Equities in Mumbai, said by phone. “A capital infusion of about Rs200 billion will help in addressing investors’ concerns.”
State banks have historically been under capitalised relative to their privately owned peers as rules requiring government shareholdings of least 51 per cent curtailed their ability to sell shares.
The average capital-adequacy ratio for the nation’s government lenders, which account for about 75 per cent of India’s banking assets, fell 0.1 percentage point to 11.3 per cent in the six months ended on September 30, central bank figures show. That compares with 12.8 per cent for the overall industry.
Stressed assets at government banks rose to almost 13 per cent of lending as of September, compared with 4.4 per cent for privately owned banks, the data show.
The CNX PSU Bank Index, which tracks 12 state-controlled lenders, rose 0.5 per cent as of 12:25pm in Mumbai. State Bank of India gained 0.5 per cent, paring its 2015 decline to 19 per cent. Bank of Baroda sank 1.3 per cent, while Punjab National Bank gained 1.2 per cent.
