Indian bank sees biggest surge in 5 years on capital boost

New Delhi / BLOOMBERG

State Bank of India (SBI) shares surged the most in more than five years, leading a rally in the nation’s lenders after the central bank eased rules allowing them to bolster capital ratios.
SBI, the nation’s largest lender by assets, jumped as much as 11 percent, the biggest intraday gain since June 2010, and traded 8.9 percent higher at 11:24 a.m. in Mumbai. Bank of Baroda rose 8.2 percent and Punjab National Bank added 5.2 percent. The S&P BSE Bankex Index, which tracks 10 lenders, advanced 4.4 percent.
The Reserve Bank of India’s amendments allow banks to consider reserves associated with property revaluations and foreign-currency translations to be considered as common-equity Tier 1 capital. It made the modification to further align the definition of regulatory capital with global Basel III standards, the central bank said in a statement late Tuesday.
The rule changes will free up as much as 350 billion rupees ($5.2 billion) in capital for state-run banks, Sophia Ng, an analyst at Bank of Tokyo-Mitsubishi UFJ Ltd., said in a note on Wednesday. The additional capital will help banks boost buffers while complying with a deadline set by Reserve Bank of India Governor Raghuram Rajan to clean up their balance sheets.
Rising bad debts and inadequate risk buffers at India’s state-run banks have been hindering Prime Minister Narendra Modi’s attempts to revive lending growth. Rules requiring government stakes of at least 51 percent have curtailed state banks’ ability to sell shares, making them less capitalized than privately owned lenders.
SBI’s Tier 1 capital ratio will improve by at least 100 basis points as the Mumbai-based lender adds the amount from property revaluations and other balance-sheet items to the capital buffer, Chief Financial Officer Anshula Kantsaid Wednesday in an interview with Bloomberg TV India. SBI’s real estate assets were valued at about 250 billion rupees four years ago, Kant said.
Government-controlled banks will require infusions of 1.8 trillion rupees in equity to comply with Basel III, Finance Minister Arun Jaitley said in August. He allocated 250 billion rupees to recapitalize state-owned lenders for the year starting April 1, the same as the current fiscal year’s outlay.
“RBI’s moves are quite positive,” Navneet Munot, chief investment officer at SBI Funds Management Pvt., which has $15 billion in assets, said on Bloomberg TV India. This measure in addition to the capital infusion target set in the budget will take care of lenders’
capitalization needs, Munot said.