India will inject as much as 140 billion rupees ($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. (IDBI), Bank of Maharastra, Dena Bank and Indian Overseas Bank (IOB) are among the government-controlled lenders that will be provided with equity capital to bring their ratios above 8 percent, Rajiv Takru, banking secretary at the Finance Ministry, said in an interview today. 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 March 31.
“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 percent.”
IDBI gained 3.8 percent to 73.4 rupees by 2:50 p.m. in Mumbai, Dena Bank (DBNK) jumped 4.4 percent to 70.4 rupees, Indian Overseas Bank advanced 3.2 percent to 49.85 rupees, while Bank of Maharashtra (BOMH) gained 1 percent to 50.85 rupees.
The government will need to infuse as much as 910 billion rupees 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 590 billion rupees of shares to other investors, he estimated.
Finance Minister Palaniappan Chidambaram announced in Feburary a plan to boost state-owned banks’ capital by 140 billion rupees by March 2014.
Lending by banks in India grew at 13.7 percent, the lowest rate in at least three years, in the twelve months to June 14, data compiled by the RBI show, as slowing economic growth curtailed demand for credit.
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