India May Delay Capital Infusion Into Banks as Stocks Slump

India may delay injecting capital into state-run banks due to slumping stock prices, said Rajiv Takru, the Finance Ministry’s banking secretary.

The government, which usually infuses capital into lenders by buying their shares, doesn’t want to lose money as prices slide, Takru said in an interview yesterday in New Delhi. He had said on July 9 the government will inject as much as 140 billion rupees ($2.2 billion) by the end of September to strengthen banks’ risk buffers and bolster credit growth.

The S&P BSE Bankex Index, which tracks 13 banks, has lost 31 percent from a record on May 17 as central bank steps to support the rupee caused interbank rates to surge. The gauge gained 0.8 percent at 3:30 p.m. trading close in Mumbai, after falling 3.1 percent to its lowest intraday level since January 2012.

The capital infusion “may now not happen in September,” Takru said. The government is waiting for stock prices to stabilize before it makes a decision on the matter, he said.

The government will need to insert as much as 910 billion rupees into the banks it controls to comply with international standards known as Basel III if it wants to maintain the stakes it holds in the lenders, Reserve Bank of India Governor Duvvuri Subbarao said on Sept. 4.

The possible delay “sends out a message that the government is seeing further downside to the banking stocks,” said Vishal Narnolia, a Mumbai-based banking analyst at SMC Global Securities Ltd.

Tighter Liquidity

State Bank of India, the country’s largest by assets, rose 1.5 percent today from its lowest close since May 2009. Yes Bank Ltd. climbed 0.5 percent, paring its slide in the past three months to 54 percent.

Bank stocks have slumped as the Reserve Bank of India raised two interest rates and tightened lenders’ access to cash since mid-July, among efforts to steady the rupee, which has tumbled 16 percent against the dollar in the past three months. The currency weakened today to a record low.

India’s interbank overnight call money rate has climbed more than 4 percentage points in the past month and was at 10.4 percent today, the highest level since March 2012.

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