10/06/2016 7:44 PM IST | Updated 15/07/2016 8:27 AM IST

Too Big To Ignore? Ailing Indian Public Banks Will Need ₹1.2 Trillion Capital Infusion

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A pile of money in a monastery bowl

India's top state-run banks will need more than double the capital the government plans to inject into them due to their weak asset quality and levels of profitability, Moody's Investors Service said on Friday.

Eleven lenders that Moody's rates, including State Bank of India (SBI.NS), Bank of Baroda (BOB.NS) and Bank of India (BOI.NS), will need about ₹1.2 trillion rupees ($18 billion) in capital through 2020, the ratings agency said, after analysing their results for the fiscal year to March.

That compares with government plans to inject ₹450 billion into state banks over the three financial years to March 2019. For the current financial year, the government has budgeted for ₹250 billion in bank capital infusion.

"Elevated provisioning expenses will continue to constrain profitability and limit internal capital generation," Alka Anbarasu, a senior analyst at Moody's, said in a statement.

Indian banks have seen a surge in their bad loans and provisions to cover loan defaults in the six months to March after an asset quality review ordered by their regulator, the Reserve Bank of India.

Moody's expects the banks' asset quality to remain under pressure over the next 12 months as they continue to recognise non-performing loans from some bigger indebted corporate groups, especially in the steel and power sectors, Anbarasu said.

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