RBI Flags Tougher Times for Banks in India, $3 B Capital Injection

Mukesh Buch
26 Jun, 2015
New York City

RBI warns in its semi-annual report that the asset quality at Indian banks is likely to worsen. Indian government may be forced to inject as much as $3 billion in banks in the current fiscal year.

[R]6:00 PM Mumbai – RBI warns in its semi-annual report that the asset quality at Indian banks is likely to worsen. Central government may be forced to inject as much as $3 billion in banks in the current fiscal year.

Banks were in focus after the Reserve Bank of India said asset quality at state controlled banks are likely to get worse before early signs of improvement appear at the end of current fiscal year.

The central bank released its assessment in the bi-annual Financial Stability Report released today and noted that the bank asset quality has suffered in the last two years after the slower economic growth stalled large infrastructure projects.

With the pace of public spending rising and the government working to accelerate the approval of large infrastructure projects will accelerate the investment and demand cycle, but it may take as long as six months.

Earlier in the month, Finance Secretary Rajiv Mehrishi said that the government is likely to provide ₹19,000 crore or $3 billion to troubled banks, an increase from the earlier estimate of ₹8,000 crore or $1.8 billion.

State controlled banks have the largest share of bad loans because nearly two-thirds of assets are held by the banks controlled by central and state governments.

Kotak Mahindra Bank Ltd fell 1.8%, Punjab National Bank, Axis Bank, ICICI Bank, State Bank of India, Yes Bank Ltd declined more than 1%.

Bank of Baroda and Federal Bank declined 0.8%.

Rupee strengthened 2 paisa to 63.60 against one U.S. dollar.

The Sensex Index slipped 84.13 or 0.3% to close at 27,811.84. The CNX Nifty decreased 16.90 or 0.2% to 8,381.10.

For the week, Sensex Index increased 1.5% and CNX Nifty advanced 1.9%.

Gainers & Losers

Bharti Airtel Limited dropped 2.3% to ₹417.50 after the largest wireless services provider’s subsidiary Bharti Enterprise acquired minority stake in OneWeb.

OneWeb is a global consortium comprising Qualcomm, Virgin Group, Airbus, Coca Cola, Intelsat and Grupo Salinas, among others, which aims to build satellites to deliver affordable broadband to all parts of the world.

The India Cements Limited soared 8.7% to ₹93.70 after the cement maker said that an independent investor and the owner of privately held retail chain D-Mart Radhakishan Damani bought 0.67% stake.

IndusInd Bank Limited edged up 0.2% to ₹866.50 on report the financial services provider plans to raise about ₹5,300 crore in an offering to institutions and promoters.

Jet Airways (India) Limited rose 0.4% to ₹282.80 after the air transportation services provider plans to raise up to $400 million through a non-convertible debenture offering.

National Buildings Construction Corporation Ltd jumped 4.9% to ₹926.50 after the construction services provider won a project worth ₹1,500 crore from the Delhi Development Authority for development of Lake View Complex at Trilokpuri, Delhi.

Wockhardt Limited rose 0.3% to ₹1,426.55 after the pharmaceutical products maker said the company received final approval from the U.S. Food Drug Administration for marketing 5mg/ 5m1 of Oxycodone HCI liquid.

Zenotech Laboratories Limited advanced 2% to ₹35.70 after the pharmaceutical products maker said that Sun Pharma plans to acquire 28% stake worth ₹20.23 crore in the company.