Indian state banks to get capital boost of $3.4bn

Bloomberg

State Bank of India and Indian Overseas Bank are among 13 state-owned Indian lenders that will receive a total of 229.2 billion rupees ($3.4 billion) in capital as the government seeks to contain risks in the banking industry while sustaining credit growth.
The State Bank of India will get 75.8 billion rupees, while Indian Overseas Bank will receive 31 billion rupees, the finance ministry said in an e-mailed statement on Tuesday. The infusion will boost the government’s shareholdings in the lenders. The S&P BSE Bankex index rose 0.4 percent as of 12:57 p.m. in Mumbai.
Some 75 percent of the funds for each individual bank are being released now and the rest later depending on performance, according to the statement.
Prime Minister Narendra Modi’s government aims to help lenders meet Basel III capital requirements after bad loans surged and banks’ profitability weakened. The central bank said in June that risks to the industry had increased “sharply.”
The government invested about 250 billion rupees in state-run lenders last financial year and set the same target for the current one. State lenders have been under-capitalised compared to their private peers because of restrictions on their ability to sell equity to raise money.
However, that’s because government shareholdings are required to be a minimum of 51 percent.
The average capital-adequacy ratio for government-owned lenders stood at 11.6 percent as of March 31, lower than the 13.2 percent for the banking system as a whole.
Stressed assets — or restructured loans plus soured debt — stood at 14.5 percent of government banks’ outstanding credit as of March, compared with 4.5 percent for privately owned banks, data compiled by the central bank show.
According to RBI rules, banks should have a minimum capital ratio of 9 percent by March 31, 2019 to comply with Basel III regulations.
State Bank of India is an Indian multinational, public sector banking and financial services company. It is a government-owned corporation with its headquarters in Mumbai, Maharashtra.
As of 2014-15, it had assets of US$310 billion and more than 14,000 branches, including 191 foreign offices spread across 36 countries, making it the largest banking and financial services company in India by assets.
Whereas Indian Overseas Bank is a major public sector bank based in Chennai, with about 3700 domestic branches, including 1150 branches in Tamil Nadu, three extension counters, and eight branches and offices overseas as of 30 September, 2014. It has an ISO certified in-house information technology department, which has developed the software that its branches use.

to provide online banking to customers