Sensex falls as India plans to cut capital infusion in banks

Indian shares fell, with the benchmark gauge slipping to a two-week low, after a report saying the government is said to cut the amount it planned to inject in state-run lenders this financial year by as much as Rs78bn ($1.2bn). The benchmark S&P BSE Sensex dropped 0.7%, with the country’s largest lender State Bank of India also falling to a two-week low. Peers including Bank of India, Bank of Baroda and IDBI Bank each fell at least 3%. The S&P BSE Bankex was down 0.7%.
“While we buy the argument that loans aren’t growing, there is still a need to strengthen the bank balance sheets looking at the sheer size of bad loans,” said Megha Vazkar, Mumbai-based head of institutional securities at Maximus Securities Ltd said by phone. “One way of doing it could be reducing the government stake in these lenders.”
The government, which had promised to inject Rs250bn into the lenders in the year through March, has decided to defer Rs21bn of the pledged amount into next financial year as loan growth remains subdued, people with knowledge of the matter said, asking not to be identified because the information isn’t public. It’s also considering the deferral of another Rs57bn, they said. Finance Ministry spokesman DS Malik declined to comment.