India to Spend $12 Billion by March on Bad Loan Clean Up
A customer holds Indian rupee banknotes at the P.N. Gadgil Jewellers Pvt. flagship jewelry store in Pune, India. (Photographer: Dhiraj Singh/Bloomberg)

India to Spend $12 Billion by March on Bad Loan Clean Up

(Bloomberg) -- India will infuse 830 billion rupees into state-run banks by March as Prime Minister Narendra Modi races to clean up a sector that’s saddled with a mountain of bad debt and boost economic growth ahead of next year’s federal polls.

A parliamentary approval to spend an additional 410 billion rupee has been sought, Finance Minister Arun Jaitley said in New Delhi today. That takes the total infusion in state-run banks to 1.06 trillion rupees this fiscal year, he added.

India’s banks are finding it hard to lend to new projects and reverse an economic slowdown, enabling opposition parties to sharpen their attack on Modi in the run-up to 2019 elections. The sector, saddled with the world’s worst bad-loan ratio after Italy, is struggling with more than $210 billion of stressed debt on their balance sheets.

“Four to five banks could come out of PCA in FY19,” Rajiv Kumar, secretary of banking at the Ministry of Finance, said, referring to the central bank’s so-called Prompt Corrective Action taken against some weak lenders. Kumar added that the State Bank of India, Bank of Baroda, and Vijaya Bank may not need capital infusion, but Punjab National Bank might.

Capital buffers lower than regulatory norms have pushed 11 out of the country’s 21 state-run banks under the PCA framework -- rules that mandate them to focus on recovering bad debts and place curbs on lending and expanding branch network. Some state-run banks surged on Wednesday after news that some of the strictures may be lifted.

©2018 Bloomberg L.P.

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