Indian banks falling short of Basel III capital standards

Need to raise US$25 billion by March 2018.

India’s Ministry of Finance is asking state banks to complete plans for capital buffers and to decide this month on ways to raise the US$25 billion required by Basel III.

It is also asking banks to look at options other than capital infusion by the government to meet the new Basel III rules.

India plans to inject as much as US$2.3 billion into state-run banks by September to keep the Tier 1 capital ratio above 8%. State-run banks account for three-fourths of the nation’s lending.

The government will also need to infuse some US$15.2 billion into its majority-owned banks to help them comply with Basel III requirements, and to maintain state ownership.

Bank lending in India, however, rose 14% in the year to June 14, the slowest pace in three years as the weak economy cut credit demand.

India’s economy grew 5% in the year ended March 31, the slowest pace since 2003, and less than the 10-year average of 8%.

Bad loans at the country’s lenders reached 3.7% of total lending in 2012, the highest in five years, but fell to 3.4% in March.