Govt considers selling stake in weak banks, raise funds for rural housing

Proceeds will be used to fund Prime Minister Narendra Modi's rural housing program.

The government is considering selling controlling stakes in some of the smaller state-run banks in a bid to raise funds to boost spending on programs for the poor, people with knowledge of the matter said.

The proposal being considered involves offering a majority stake in some of the weaker banks and use the proceeds to fund Prime Minister Narendra Modi’s rural housing program, the people said, asking not to be identified as the proposal is at an early stage. The details are still being worked out and, if approved, it could be included in the budget to be unveiled on July 5, the people said.

Modi’s administration is under pressure to raise spending on welfare programs and revive growth after a resounding mandate in the recently concluded elections. If the plan is finalised, the government will need to amend a law to enable it to sell majority control in state-run banks, the people said.

Two calls made to Finance Ministry spokesman D.S. Malik remained unanswered. The Reserve Bank of India and the government are in the midst of cleaning up a banking system saddled with the world’s worst non-performing loan ratio.