India’s central bank governor says state banks need more capital

Commuters travel past a Reserve Bank of India (RBI) building in Kolkata November 11, 2014. — Reuters picCommuters travel past a Reserve Bank of India (RBI) building in Kolkata November 11, 2014. — Reuters picMUMBAI, Aug 19 — State-run banks will need more capital to resolve bad problems weighing on their balance sheets, Reserve Bank of India Governor Urjit Patel said today, adding his voice to calls for increased capital injections into lenders.

More than US$150 billion (RM644.2 billion) of bad debt is crimping credit growth in Asia’s third-largest economy and the government and have been trying to ease the burden on state-run lenders.

Patel said that the regulatory challenges of tackling bad loans were compounded by the weak capital position of some banks, particularly those owned by the government.

“The success and credibility of all the resolution efforts would be critically contingent on the strength of public sector bank balance sheets to absorb the costs,” Patel told a conference in Mumbai.

“The government and the Reserve Bank are in dialogue to prepare a package of measures to shore up capital in a time bound manner.”

Extra capital could be raised either by getting funds from the market, through the government diluting its stake in state-run banks, through additional government capital infusions, or the sale of non-core assets and mergers among lenders, he said.

“The early signs are encouraging. However we all must realise it will be a long haul before the intended objective are fully achieved,” the governor said.

Patel also said that banks would need to take haircuts as they tackle bad loans.

Moody’s Investors Service said in June that the 11 state-run banks that it rates could need up to 950 billion rupees (RM63.5 billion) in equity capital by March 2019, far above the 200 billion rupees the government plans to inject into state banks by then. — Reuters

Source: The Malay Mail Online

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