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India proposes injection of additional 410B rupees into weak state-run banks

India's government proposed to infuse an additional 410 billion rupees into some of the weakest state-run banks in the fiscal year ending March 31, 2019, as it sought to help them emerge from the central bank's prompt corrective action framework, a result which may lead to faster economic growth.

In a Dec. 20 statement, India's Finance Ministry said it was seeking parliamentary approval to boost its bank recapitalization plan to 1.060 trillion rupees from 650 billion rupees for the current fiscal year. The move, if approved, would allow the government to inject more than 830 billion rupees into state-run banks in the coming few months, the ministry noted.

The increased capital injection is aimed at helping banks meet regulatory capital requirements under the PCA framework. They include a capital to risk-weighted asset ratio of 9%, capital conservation buffer of 1.875% and a net nonperforming asset threshold of 6%.

Further, the additional capital would facilitate non-PCA banks that are in breach of some thresholds to meet the thresholds, as well as strengthen merging banks by providing regulatory and growth capital.

India's central bank placed 11 banks under the PCA framework between February 2014 and January 2018, Mint reported. The framework is aimed at facilitating struggling banks to take measures to restore their financial health. Banks are placed under the framework when they breach regulatory norms such as minimum capital and amount of nonperforming assets. The central bank imposes lending restrictions on lenders that are placed under the framework.

As of Dec. 20, US$1 was equivalent to 69.99 Indian rupees.