India to inject $3.4 billion in state banks to revive credit growth

New Delhi/Mumbai: India will inject 229.15 billion rupees ($3.41 billion) in 13 state-run banks to help shore up the cash-strapped lenders and revive loan growth that has hit a two-decade low.

The capital infusion is part of New Delhi`s plans to invest 700 billion rupees in state lenders over four years to March 2019.

Finance Minister Arun Jaitley has budgeted 250 billion rupees for bank recapitalisation this fiscal year, but he has committed to infuse more if required.

Top lender State Bank of India will get 75.75 billion rupees in capital, the finance ministry said in a statement on Tuesday. Indian Overseas Bank , which has the worst bad-loan ratio, is set to get 31.01 billion rupees.

A surge in bad loans and the full implementation of global Basel III bank capital rules mean Indian banks need billions of dollars of new capital.

While relatively better balance sheets are expected to make it easier for private lenders tap financial markets, most state-run lenders - struggling with a pile of stressed assets and lower profits - are heavily reliant on the government for funds.

Rating agency Fitch reckons Indian banks would need $90 billion in new capital to meet Basel III requirements, with about two dozen state-run banks accounting for 80 percent of that figure.

Fourth-biggest state-run lender Punjab National Bank , which reported a record loss in the March quarter, will get 28.16 billion rupees, the finance ministry said. Bank of India , the third-biggest state-run lender, will get 17.84 billion.

Bank stocks rose after the announcement, with the state-bank index trading 0.4 percent higher in a Mumbai market that was down 0.1 percent.