The Indian government is set to pump INR79.4bn ($1.3bn) into state-owned lenders in the next fiscal year in an effort to improve the banks’ capital reserves.
Finance Minister Arun Jaitley said in the federal budget for the year ending March 2016 to parliament, "To be in line with Basel-III norms, there’s a requirement to infuse 2.4 trillion rupees as equity by 2018 in our banks. To meet this huge capital requirement we need to raise additional resources to fulfill this obligation."
Reserve Bank of India deputy governor S.S. Mundra remarked that capital requirements for the state-run banks are "significantly higher than what presently the government looks prepared, or say, is in a position to provide."
The opinion was reiterated by Fitch Ratings’s local unit director Ananda Bhoumik who said that the capital injection for the year is lower than the minimum INR200bn rupees that is required to prevent banks’ credit profiles from deteriorating amid higher bad loans according to earlier estimates.
The government has already made a capital infusion of INR69.9bn in 2015 to those state lenders, which showed better performance in terms of profitability.
The government also allowed banks to sell stakes to raise funds, provided that the government continues to hold a stake of at least 52%.