India to Inject $2 Billion Capital in Four Weakened State Banks

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India will infuse 145 billion rupees ($2 billion) into four state-run banks to help strengthen capital buffers and potentially free some of the lenders from regulatory curbs.

Central Bank of India, Indian Overseas Bank, Bank of India and UCO Bank will receive the funds through zero-coupon bonds, according to a government notification dated Tuesday. All these lenders, except Bank of India, are under the Reserve Bank of India’s sanctions as their bad loans rose.

Prime Minister Narendra Modi’s government needs a healthier banking sector to boost lending and revive an economy set for a steep contraction. It is also looking to sell its stakes in certain lenders to earn cash and improve competitiveness. The industry’s bad-loan ratio is forecast to double in the year through September, with most of the soured assets held by state-run banks.

Read about the government’s capital infusion plans

The capital injection will help the banks exit the RBI’s so-called prompt corrective action program in the financial year starting April 1, said Anil Gupta, vice-president of financial sector ratings at ICRA Ltd. However, given the infusion is through zero-coupon debt, “the earning profile of these banks may not improve,” he said.

Name of BankAmount allocated (in billion rupees)
Central Bank of India48
Indian Overseas Bank41
Bank of India30
UCO Bank26

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