India’s State Bank Says Lenders Need More Capital to Expand

  • State Bank’s capital ratios comfortable for the year to March
  • State-run banks’ capital can’t support strong loan grow: SBI

India’s state-run banks will need more capital than promised by the government to boost credit growth as they grapple with bad loans of more than 4.7 trillion rupees ($70 billion), the head of the nation’s largest lender said.

“If you really want credit to speed up and infrastructure financing to take center stage then more capital is required in the banking system,” Arundhati Bhattacharya, chairman of State Bank of India said in an interview at her office on Monday. “Growth capital is required if credit growth has to be in double digits going ahead.”

India has pledged to add 500 billion rupees to state-run lenders by 2019. That may not be enough for the government led by Prime Minister Narendra Modi to spur a revival in credit growth in Asia’s third-largest economy. Delinquent loans have surged amid inadequate risk buffers at India’s government-controlled lenders, which account for more than 70 percent of loans in the nation’s banking system.

State Bank of India and Punjab National Bank were the only two state-controlled banks among 28 that expanded loans by more than 10 percent in the year to March 31, data compiled by the finance ministry shows.

Timely capital infusions into constrained public sector banks will aid credit flow, the Reserve Bank of India said in its monetary policy statement on June 7. Rules requiring government stakes of at least 51 percent have curtailed state banks’ ability to sell shares, while an audit of loan books by the RBI uncovered more soured debt, making them less capitalized than privately-owned lenders.

The government’s plan to invest in state-run lenders will help them to comply with tighter capital requirements under the so-called Basel III norms. Further capital will be provided above this target if there is a requirement, Finance Minister Arun Jaitley told reporters in New Delhi on June 6.

State Bank of India, which is 60.2 percent owned by the government, doesn’t require any additional capital this year to add loans at a healthy pace, Bhattacharya said. The lender had a bad loan ratio of 6.5 percent in the year to March 31 compared with 12.9 percent at Punjab National Bank.

Government lenders are the worst performers over the last six months on the S&P BSE India Bankex Index, led by Punjab National Bank’s 33 percent slump and State Bank of India’s 11 percent drop. State Bank of India fell 2 percent on Monday. The bank index has gained 8 percent in the past six months.

(An earlier version of this story corrected Bhattacharya’s designation.)

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