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India seeks approval for 800 billion rupees bank recap bonds

[NEW DELHI] India's finance ministry sought parliamentary approval to issue about 800 billion rupees (S$16.7 billion) of bank recapitalization bonds before the end of the current fiscal year.

Prime Minister Narendra Modi's administration expects to sell the bonds by March 31 as part of plans announced in 2017 to inject capital into state-controlled lenders, which are weighed down with soured loans, according the proposal put to lawmakers in New Delhi on Thursday. The new bonds will carry annual interest of more than 60 billion rupees, people familiar with matter said, asking not to be named as the information is confidential.

The signal that the recapitalization plan is moving ahead boosted shares in Indian state banks on Thursday, with the NSE Nifty PSU Bank Index climbing as much as 2.9 per cent, the biggest intra-day jump in two weeks.

"Bank shares jumped as this is finally providing some clarity regarding the time frame for the capital infusion," said Kranthi Bathini, Mumbai-based director at WealthMills Securities Ltd. "This will be another step forward in resolving the bad debt and kick starting loan growth."

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The fund-raising forms part of a planned 2.11 trillion rupee capital infusion into India's state-run lenders, announced by the government in October. By allowing the banks to address the stressed assets weighing down their balance sheets, the government hopes to bolster loan growth which has fallen to a 25-year low.

Finance Ministry spokesman DS Malik didn't respond to a call seeking comment.

In one sign that the Indian economy is already on the mend, the Nikkei India Services purchasing managers' index rose to 50.9 in December from 48.5 in November, above the 50 mark that separates growth and contraction, according to data released Thursday. That reversed a decline in the index in November.

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