After announcing the 7000 core rupee influx into the banking society, Indian banking shares soared on Wednesday, sending indexes to record highs after the cabinet approved a $32 billion plan to recapitalize its state banks over the next two years, although uncertainty remains about how the injections will be structured.
The gains come after India’s cabinet announced its plan to inject 2.11 trillion rupees ($32.4 billion) into state-run lenders over the next two years. Investors welcomed the news, sending State Bank of India, the biggest lender, up as much as 25 percent to its highest since January 2015. The benchmark NSE Nifty surged as much as 1.3 percent to a record high.
But details of how New Delhi will fund the injections remain unclear. Also, questions remain about whether it would add to the country’s fiscal deficit at a time markets are already doubtful India can meet its 3.2 percent target of gross domestic product for the year ending in March 2018.
The amount injected also still falls short of credit rating estimates. Fitch Ratings estimates Indian banks will need $65 billion of additional capital by March 2019 to meet Basel III global banking rules.
For now, analysts said the actions were a positive – and long-awaited – move.
Of the planned 2.11 trillion rupees sum, so-called recapitalisation bonds will account for 1.35 trillion rupees, while about 580 billion rupees is estimated to come from share sales by banks, the ministry said on Tuesday.
The government will also use 180 billion rupees left from its previously budgeted recapitalisation fund.
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