Indian banks rally on record $32 bln capital injection

India's state-run banks surged between 20 percent to 35 percent on Wednesday after the government pledged to inject record 2.11 trillion rupees ($32 billion) of capital into the lenders to revive credit growth.

SBI
A security personnel stands guard in front of the gate of the State Bank of India (SBI) regional office in Kolkata May 23, 2014. Reuters

India's state-run banks surged between 20 percent to 35 percent on Wednesday after the government pledged to inject record 2.11 trillion rupees ($32 billion) of capital into the struggling lenders to revive credit growth.

The record capital injection and plans to spend on building roads is Prime Minister Narendra Modi's attempt to revive an economy that's expanding at its slowest pace in three years.

The government will sell 1.35 trillion rupees of recapitalization bonds, while banks will raise another 760 billion rupees through "budgetary support" and from the markets, according to the plan announced Tuesday.

Fitch Ratings estimates that India's state lenders will need about $62 billion in additional capital by 2019 to meet global Basel III requirements.

The S&P BSE PSU Index climbed 6.4 percent. State-run lenders including Punjab National Bank, Canara Bank, Union Bank, Bank of Baroda and Bank of India surged between 26 percent to 36 percent in Mumbai trading.

(With inputs from Bloomberg)

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