The Indian government has approved plans to sell part of its stakes in state-backed banks and raise as much as INR1.6tn ($26bn).
The move follows Fitch’s recent revelations showing that government banks are highly undercapitalized, and that lenders need to raise $200bn in fresh capital by 2019 to comply by Basel III banking norms and cope with a recent jump in problem loans.
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The stakes of the country’s 27 state-run banks at present have state ownership ranging from 56% to 84%.
Following the stake sale, which is expected to be carried out in a phased manner till 2019, the government would continue to hold 52%stake in the banks.
The banks also require about $60bn to develop a buffer against bad loans to comply by new global regulations.
Moreover, the government would have to inject $12.7bn over the next four years to maintain its 52% stake.
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