India will infuse ??14,500 crore ($ 2 billion) in four state-run banks to help strengthen capital buffers and potentially free some of the lenders from regulatory restrictions.
The Central Bank of India, Overseas Bank of India, Bank of India and UCO Bank will receive the funds in the form of zero coupon bonds, according to a government notification dated Tuesday. All of these lenders except Bank of India are under Reserve Bank of India sanctions as their bad debts have increased.
Prime Minister Narendra Modi’s government needs a healthier banking sector to boost lending and revive an economy that is expected to contract sharply. It is also looking to sell its stakes in some lenders to earn money and improve its competitiveness. The industry’s bad debt ratio is expected to double by September, with most of the degraded assets held by state banks.
The capital injection will help banks exit the RBI’s so-called rapid corrective action program in the fiscal year beginning April 1, said Anil Gupta, vice president of financial sector ratings at ICRA Ltd . However, since the injection is done through zero coupons. debt, “the income profile of these banks may not improve,” he said.
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