January 4, 2018 / 7:18 AM / 7 months ago

India seeks parliament nod to spend $12.6 billion on bank recapitalisation plan

NEW DELHI (Reuters) - The government asked parliament on Thursday for 800 billion rupees ($12.62 billion) that it plans to spend by March as part of a two-year programme to recapitalise state banks to help them deal with bad debts and revive credit growth.

FILE PHOTO - An India rupee note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

In October, Finance Minister Arun Jaitley announced the plan to recapitalise the 21 banks with 2.11 trillion rupees, including 1.35 trillion rupees through recapitalisation bonds and 580 billion rupees from share sales by state-run banks.

The lenders which are majority-owned by the government have more than two-thirds of India’s banking assets. These banks also account for the bulk of the sector’s record $150 billion in bad loans, a major factor choking new credits, after years of profligate lending.

The banks also face higher capital requirements as mandated by the global Basel III banking rules to be fully implemented by March 2019.

On Thursday, the finance ministry presented the planned expenditure for state bank recapitalisation in the fiscal year ending in March in the lower house of parliament. It said this would not entail any cash outgo after taking into account the receipts on issue of securities to the banks.

Bank shares rose on the move, with the Nifty public sector bank index rising 2 percent by 0911 GMT in a Mumbai market that was up 0.4 percent.

Some of the state-run banks with high bad loans - Dena Bank, UCO Bank and IDBI Bank - jumped between 7 percent and 8 percent.

Neither the finance ministry nor the central bank has given a breakdown, by bank, of the recapitalisation sum. Under the current plan, banks are supposed to subscribe to the bonds and the government will invest the funds raised in return for equity in the banks.

Earlier on Thursday, Moody’s Investors Service said it expected all the 21 state banks to meet the minimum Basel III requirement of 8 percent common equity tier 1 (CET1) ratio by March 2019, aided by the recapitalisation.

($1 = 63.4000 Indian rupees)

Reporting by Nigam Prusty and Manoj Kumar; Writing by Devidutta Tripathy; Editing by Malini Menon and Richard Borsuk

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