Burton Mills - Indian State Banks to Seek Alternate Funding

TAIPEI CITY, Taiwan, April 6, 2018 (Newswire.com) - Burton Mills says a colossal $32 billion bailout scheme for India’s state-run banks will not be repeated and state-run institutions will have to come up with capital by offloading non-core assets and through mergers.

Twenty one state run banks that are majority-owned by New Delhi make up more than 66 percent of banking assets in India’s economy. Burton Mills analysts say these institutions also hold approximately 90 percent of the bad loans in the banking sector.

In October last year, the finance ministry of India announced a bailout plan to the value of 2.11 trillion rupees in a bid to help banks bolster credit growth and contend with their soured loans. Burton Mills analysts say a rescue plan of this magnitude was necessary in an economy where the main source of capital originates from the banking sector.

With the first tranche of the bailout funds now in the process of being rolled out, an official who oversees state-run banks stated that there will be no further monetary easing. Banks will be forced to seek their own sources of capital.

Burton Mills analysts say India’s government would like to reduce the number of state-run banks by almost 50 percent through mergers. Burton Mills expects some such mergers to take place over the course of the next financial year.

Recent amendments to regulations by India’s Reserve Bank have removed existing loan structuring models and could result in an increase in the value of non-performing loans held by state-run banks. Burton Mills analysts say the upper limit for this increase would not be permitted to exceed 10 trillion rupees.

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Source: Burton Mills