India Seeks to Boost State Bank Capital Infusion to $1.9 Billion

India’s finance ministry is seeking to boost the size of an annual capital infusion into state-owned banks to help them ward off the highest levels of bad debt in 13 years.

The ministry wants to raise the cash to be injected in the year to March 31 to 120.1 billion rupees ($1.87 billion), a supplementary demand for grants tabled in parliament Friday showed. The amount, which is higher than the 79.4 billion rupees pledged by the government in its February budget, needs approval from lawmakers.

The state is boosting its allocation after central-bank data showed stressed assets at Indian lenders climbed to the highest level since 2002 and capital ratios declined. The government set aside 69.9 billion rupees for state lenders in the fiscal year that ended March, which was the lowest total since at least 2009.

“The higher capital infusion will help credit growth in the near term,” P Karthikeyan, a Chennai-based banking analyst at Cholamandalam Securities Ltd., said by phone. “While this meets the market’s expectations for the time being, the government needs to put in place a long-term capitalization plan to help lenders meet Basel III requirements.”

The parliamentary document didn’t disclose capital allocations for any of the government banks, which account for about 75 percent of India’s banking assets.

Stressed Assets

State lenders have historically been under capitalized relative to their privately owned peers as rules requiring government shareholdings of least 51 percent curtailed their ability to sell shares.

The average capital-adequacy ratio for government lenders is the lowest in the nation’s banking system, which had a ratio of 12.9 percent as of March 31, the central bank said in a June report. Stressed assets at government banks amounted to 13.5 percent of lending as of March, compared with 4.6 percent for privately owned banks, data compiled by the central bank show.

The CNX PSU Bank Index, which tracks 12 state-controlled lenders, gained 5.4 percent, the most since May 11 as of 2:29 p.m. in Mumbai. State Bank of India jumped 5.9 percent, paring its 2015 decline to 13 percent. IDBI Bank Ltd. climbed 6.9 percent and Union Bank of India rose 7.8 percent.

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