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India to Infuse $3.65 Billion of Capital Into Government-Run Lenders

March 1
1:58 AM 2016

Starting April 1, India is going to induce 250 billion rupees or $3.65 billion of capital to lenders controlled by the government due to bad and restructured loans set to climb from a 14-year high.

The introduction target follows with the 250 billion rupees which the government revealed in August for the government-controlled lenders for the year 2017.  The funding will help banks to boost capital buffers submitting to a deadline set by Reserve Bank of India Governor Raghuram Rajan to clear their balance sheet, according to Bloomberg.

"We are now confronted with stressed assets at public sector banks, which is a legacy of the past," Finance Minister Arun Jaitley said Monday in New Delhi while presenting the federal budget for the year ending March 2017 to parliament. The government will find "additional resources" if the banks require more money, he said.

Twenty-four government-controlled lenders, being directed by State Bank of India, have power to more than two-thirds of the nation's banking assets. Due to political interference history, poor management and deficiency of bankruptcy code, large debts became unrecoverable, as reported by CNBC.

Lenders have been struck hard by an increase in bad and troubled loans even if the economy has grown fast; rising the capital necessity which is more than 1.8 trillion rupees the government estimates they must increase to fit the global bank capital rules by 2018.

Some banks became relieved from what Finance Minister Jaitley said that the state would back the lenders in case they need capital. He said that the government will consider slashing its share in government-state run IDBI Bank to below 50%, making the bank's stakes higher by up to 16.5%.

He also added that the government will enable asset reconstruction companies which buy loans from banks, to be wholly owned by their sponsors. This is a step aimed at supporting the sector that is capital-deficient.  Foreigners are also allowed to own 100% of these companies without the need to ask prior government approval, Reuters reports.

Banks owned by the government comprise of more than 70% of India's unpaid loans. State-controlled lenders will need infusions of 1.8 million rupees in shares to adapt with international standards under Basel III regulatory regime.

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