India to infuse capital into state-run banks: FM

Last Updated: Thu, Nov 15, 2012 11:54 hrs

The government will decide in the next few weeks how much additional capital will be injected into state-run banks after determining most of these lenders will need additional funds, Finance Minister P. Chidambaram said on Thursday.

However, the combined injection of capital will not exceed the 150 billion rupees provisioned in the budget for the fiscal year ending in March 2013, Chidambaram added in a news briefing after meeting the heads of public sector lenders.

Even at the maximum, the amount injected would fall short of the public banks' capital requirements. India's central bank said in September the government needs to infuse 900 billion rupees into state-run banks to meet the upcoming Basel III requirements.

India's state-run banks are faced with rising non-performing assets (NPA) and write-offs because of poor lending decisions, and as companies struggle to pay off loans in a slowing economy.

"At least most banks will require additional capital. We will budget a provision for infusing additional capital and that decision will be taken in the next few weeks," the minister said.

The top three banks that need the most capital are Indian Overseas Bank, Central Bank of India and Bank of Maharashtra, Chidambaram said. Shares in the three lenders rose between 1-2 percent each on Thursday.

Chidambaram estimated state banks' bad loans rose by 0.98 percent at the end of September, compared with the same month a year ago.

"NPAs is a problem. That is a reflection of the slowdown in the economy," he told reporters.

Chidambaram added the government will take steps to improve sectors such as textiles, steel, infrastructure, construction and telecom infrastructure that are at the root of the bad loans at public sector banks. He did not provide details.

India's economy is likely growing at its slowest pace in a decade, and the government is under pressure to pass policy reforms to improve growth and keep its fiscal deficit under control.

Chidambaram has signalled the government is seeking to keep the fiscal deficit at 5.3 percent for the fiscal 2012/13 year, slightly wider than the 5.1 percent targeted in March.

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