India may target $7.4 billion from stake sales in budget: source

NEW DELHI Wed Feb 13, 2013 7:38pm IST

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NEW DELHI (Reuters) - The government is likely to target 400 billion rupees in proceeds from stake sales in state-run companies in the next fiscal year, a finance ministry official with direct knowledge of budget talks told Reuters on Wednesday.

The official also said the government is likely to allocate 200 billion rupees for capital infusions into state-run banks in the next financial year, up from 150 billion rupees set aside for bank recapitalisation in the current year.

The revenue target from a partial privatisation of state-run companies is higher than the 300 billion rupees New Delhi is aiming for in the current fiscal year that ends in March.

With less than two months to go before the year closes, the government has managed to raise 70 percent of the targeted amount, and officials in the government concede that the final figures for this year could fall shy of the target.

The struggle to meet the current year's target had made many investment bankers believe that the government would likely budget at least 300 billion rupees for next fiscal year as well.

But a resource crunch has forced New Delhi to aim higher, said the official, who declined to be identified because he was not authorised to speak about the budget, to be released on February 28.

"The aim is to maximise your revenue options. Low growth has constrained our resources," the official said. The government is still to finalise the target, he said.

India needs to augment its revenues to help lower the fiscal deficit to its targeted 4.8 percent of gross domestic product in the financial year that begins on April 1. A swollen deficit has put the country's investment grade credit rating in peril.

The planned capital injection into state banks, while higher than in the current year, still falls short of their capital requirements. The central bank said in September that the government needed to infuse 900 billion rupees into state-run banks to meet upcoming Basel III requirements.

India's state-run banks face rising bad assets as companies struggle to pay off loans in a sluggish economy.

The official said the government would likely infuse capital in 12 banks, including State Bank of India, the country's largest lender.

The government this month approved a plan to inject around 30 billion rupees in State Bank of India through preferential allotment of shares.

(Reporting by Rajesh Kumar Singh; Editing by Ron Popeski)

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