India Takes Steps to Fix Bank System With $12.6 Billion Bond Plan

Government expects to sell bonds before end of fiscal year
State bank shares surge on sign recapitalization moves ahead

An Indian five hundred rupee banknote is arranged for a photograph in Mumbai, India, on Sunday, Jan. 29, 2017. Reviving India's growth and boosting demand are essential as gross domestic product is likely to grow 7.1 percent in the year through March, the slowest pace in three years -- and this is before considering the impact of currency shortages in an economy where 98 percent of consumer payments are made in cash.Photographer: Dhiraj Singh/Bloomberg

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By Siddhartha Singh and Anto Antony

January 4, 2018 at 5:53 AM UTC

Updated on

January 4, 2018 at 8:54 AM UTC

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India took another step towards cleaning up a banking system riddled with bad loans, with the government seeking parliamentary approval to issue about 800 billion rupees ($12.6 billion) of bonds to fund capital injections into state lenders.

Prime Minister Narendra Modi’s administration expects to sell the first of its recapitalization bonds before the fiscal year ends March 31, as part of plans announced in 2017 to repair the balance sheets of state-controlled banks, according to the proposal put to lawmakers in New Delhi on Thursday. The new bonds will carry annual interest of more than 60 billion rupees, people familiar with the matter said, asking not to be named as the information is confidential.