India reassures banks of capital infusion: Sources

India has assured state banks it is ready to provide capital support as the coronavirus pandemic may lead to a surge in bad loans when economic growth is slowing, three government and banking sources told Reuters.

New Delhi may need to make a provision of at least 200-250 billion rupees ($5.90 billion) for capital infusion in state-run banks. However, this number can increase significantly as the situation evolves, the officials said.

“The NPAs (non-performing assets) could remain an issue and the government may need to make a provision for some capital infusion in the public sector banks,” said a senior government official with direct knowledge of the issue.

None of the sources wanted to be named as the plan is not yet public. A finance ministry spokesman declined to comment.

The government has already pumped in 3.5 trillion rupees ($45.91 billion) in the last five years to rescue the beleaguered banks. In this financial year’s budget announcement in February, it had not allocated any funds for capital infusion. Instead, the banks had been encouraged to tap capital markets for funds.

“Given the pressure on their credit profiles, we expect public sector banks’ access to equity capital market will remain challenging, at least over the next few quarters,” Alka Anbarasu, vice president and senior credit officer, financial institutions at Moody’s Investors Service said.

Indian banks are burdened with a bad loan pile of nearly $140 billion and the lion’s share of it rests with the state-owned banks. Meanwhile, loan growth for the banking industry has also plummeted to the low single digits putting a further strain on these lenders.