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 ($2.73 billion) 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 per cent each on Thursday.
Chidambaram estimated state banks’ bad loans rose by 0.98 per cent at the end of September, compared with the same month a year ago. “NPA 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.
P Chidambaram on Thursday said he has asked RBI to finalise guidelines for new bank licenses and start accepting applications for the same pending passage of the Banking Laws (Amendment) Bill. “We have written to the RBI recently urging them to proceed to finalise the guidelines and proceed to receive applications for new banking licenses in anticipation of the amendment in the banking regulation act,” he told reporters after reviewing the performance of public sector banks.
“As per the RBI’s draft norms released in August 2011, private sector entities or groups owned and controlled by Indian promoters, with diversified ownership, sound credentials and integrity, and having successful track record of at least 10 years, would be eligible to promote banks,” Chidambaram said.
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.