India to inject $6.8bn into state banks

Bloomberg

India will inject 482 billion rupees ($6.8 billion) into government-controlled lenders to help them meet tighter regulatory requirements and to boost credit growth.
The fund infusion will ensure that capital ratios for all state-run lenders are above the regulatory requirement and will help Allahabad Bank and Corporation Bank exit a so-called Prompt Corrective Action plan, Rajeev Kumar, secretary at India’s department of financial services said in a tweet on Wednesday.
The injection will help lenders struggling with an erosion in capital reserves to boost lending and support economic expansion.
The government is hoping that a stronger banking system will help bolster loan growth hovering near a five-year high seen in December.
Earlier this year, Prime Minister Narendra Modi’s government got parliamentary approval to spend an additional 410 billion rupees to strengthen the bank balance sheets on top of a 1.35 trillion rupee recapitalization plan announced in 2017.
BOFA SEEKS RULE CHANGE TO QUICKEN BAD-LOAN CLEAN-UP
India’s distressed debt market is being hobbled by rules that bar foreign funds from directly buying up bank loans, according to Bank of America Corp.
In the past year, the US lender has had to team up with local asset reconstruction companies to purchase loans made to firms including Seven Hills Hospitals and GTL Infrastructure Ltd. that had soured. As it scouts for more opportunities in the nation with the world’s worst non-performing debt ratio, the requirement for local partners is a hindrance, said Jayesh Mehta, country treasurer at Bank of America Merrill Lynch.
“Current regulations demand that a foreign bank must bid through the ARC route when a distressed debt is auctioned,” Mumbai-based Mehta said in an interview. “We should have regulations providing direct access for foreign companies to bid without an intermediary. This change is required to create depth in the distressed debt market.”
Twenty-nine asset reconstruction companies have been set up in India under a 2002 law passed to help reorganize non-performing credit, RBI data show, though many of these haven’t been active due to a lack of funds.
Bank of America was the sole bidder in an auction on February 11 where SBI sought to sell loans made to Essar Steel Ltd., people familiar with the matter had said. The lender is considering scrapping the deal due to lack of demand for the debt, according to the people.
While overseas investors including KKR & Co., Blackstone Group LP and SSG Capital Management Ltd. have either set up their own asset reconstruction companies in India or bought into existing ones, others like Bank of America and SC Lowy have structured deals through such firms by paying them a fee.