MORE FOR BANKS … $10billion infusion planned by govt into state-owned banks, says FM

NEW DELHI: India will inject another 700billion rupees ($10.2 billion) into state-owned banks, giving them a bigger cushion to absorb loan losses and bolster credit growth at a time when the country’s shadow banks are in retreat. This, even as huge amounts of bad debt, or loans not paid back by wilful defaulters, are breaking the back of these banks.
The government has been going round and round in the matter of realizing the bad debt from defaulters like Vijay Mallya of the Kingfisher brand who claimed he lost millions in his aviation business. He’s silent about the huge profits his family liquor business earned, though.

Many big sharks, like Mallya, are believed to have bled banks and taken away huge sums for deposits abroad — their actions seriously hitting the national economy. The Modi government does not have a good record about reining in such elements and instead is giving them a long rope. Former finance minister Arun Jaitley, now ailing and out of the picture, could not handle such matters with efficacy. He was a close chum of PM Modi.
The new infusion will “boost capital so that credit can be further improved,” finance minister Nirmala Sitharaman said on Friday, while presenting the federal budget for the year to March 2020. New measures will be introduced to improve governance at the state lenders. Boosting credit growth is a key goal of Prime Minister Narendra Modi’s government, as it seeks to revive the economy and offset the effects of a shadow banking crisis that has been unfolding since September.
Capital injections into government-controlled banks have been rising in recent years, in a bid to help the firms deal with a bad-loan legacy that has crippled the balance sheets of several state lenders. But just as Indian banks emerge from that three-year struggle, they face the possibility of a spate of debt defaults by non-bank finance companies, which could presage a new wave of stressed assets.
Loan growth at Indian banks accelerated to nearly 9% in the six months ended March 31, more than double the 4% rate in the previous six months, according to the Reserve Bank of India. But that may not have been enough to offset the decline in credit extended by the struggling shadow banks, according to CARE Ratings analyst Mitul Budhbhatti. “It is difficult for banks to immediately bridge the gap left by a slowdown by NBFCs,” Budhbhatti said, speaking before the budget announcement. “That would mean overall availability of credit coming down and cost of credit for borrowers rising.”
A year after a series of defaults by Infrastructure Leasing & Financial Services that exposed the weakness in India’s shadow banks, the problem is deepening with other NBFCs such as Dewan Housing Finance Corp. and Anil Ambani’s Reliance Capital Ltd. struggling to find new money. The latest budgeted infusion into state banks is below the 1.06 trillion rupees injected in the previous fiscal year, and the 900 billion rupees in 2017/18. –AGENCIES, IHN-NN

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