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India says considering plan to reduce stake to 52% in state banks

[NEW DELHI] The Indian government is considering a plan to reduce stakes in state-run banks to 52 per cent that could enable it to raise about 891.2 billion rupees (US$14.39 billion), Jayant Sinha, junior finance minister told lawmakers on Friday.

The government holds stakes ranging from 56 per cent to 84 per cent in the state-run banks that account for 70 per cent of India's total outstanding loans of about US$1 trillion. "The reduction of government of India share in equity capital of PSBs ( public sector banks) to 52 per cent will enable mobilisation of about 891.20 billion rupees," Sinha said in a written statement.

He said the stake sale will enable the government to scale back its budgetary support for the banks.

India's 26 state-run banks, which include State Bank of India, Bank of Baroda need as much as US$60 billion in new capital over the next few years to meet upcoming global regulations and to build a buffer against rising bad loans.

According to the central bank's estimates, the government would need to inject as much as 2.4 trillion rupees into state-owned banks by end March 2019 to meet capital requirements including Basel III, provisioning for asset quality, and additional risks.

Officials in the finance ministry say the federal cabinet headed by Prime Minister Narendra Modi is expected to take a final decision on the issue of stake sale soon.

India's Finance Minister Arun Jaitley, who is concerned about mounting bad assets of the state-run banks - estimated at 2.16 trillion rupees at the end of previous fiscal year - has promised to take steps to improve their performance.