Govt allows PSU banks to eye markets for cash if growth picks up

The move is necessitated after the FM allocated Rs 8,000 cr in his budget to the banks in FY16, well below the initially planned Rs 11,200 cr

The state-owned lenders may turn to equity markets and other alternative sources of capital in order to compensate for a smaller cash injection from the government this year, a senior official said on Wednesday.

Hasmukh Adhia, financial services secretary, said he did not see an immediate rush to market. Analysts, though, have warned that an expected pick up in credit growth could put state-backed banks on the spot.

In its budget for the fiscal year to March 2016, the government said it would inject Rs 8,000 crores in state-run banks, well below analysts' expectations, and down from Rs 11,200 crores initially planned for the current fiscal year.

Adhia told reporters after a meeting between government officials and the heads of the state lenders that the two sides had discussed issues including capital and the government's injection into the sector.

"We have also asked the banks to explore other options," he said. He did not elaborate.

Though currently not under pressure for cash as an economic slowdown weighed on credit growth, India's banks are estimated to need more than $40 billion through March 2019 to comply with global Basel III norms.

Successive governments have poured billions into the state banks, most of whom are burdened by high bad loans, bad-debt burdened state banks, although policymakers have in recent months warned that the support was unsustainable.

Jayant Sinha, the junior finance minister, said separately on Wednesday that the government discussed issues around capital-raising in the meeting with the chiefs of state-run banks, but more detailed discussions would be needed.

The government's stake in nearly two-dozen state-run banks range from 56 to 84 percent. In December, the federal cabinet allowed the lenders to mull fundraising options by selling shares, provided the government stake in any of the banks does not fall below 52 percent.