India's state-run banks posted a combined loss of 853.7 billion rupees or 8.5 lakh crore ($12.65 billion) in the fiscal year ended this March, according to data compiled by Reuters, as their provisions for bad loans surged following stricter central bank rules.

All but two of the 21 banks in which India owns a majority plunged into losses in the March quarter after the Reserve Bank of India in February withdrew half a dozen loan restructuring schemes and put in place other curbs.

For the fourth quarter alone, total losses in the state-run banking sector were 626.81 billion rupees or 6.26 lakh crore ($9.30 billion) - negating modest profits at Indian Bank and Vijaya Bank.

To be sure, state banks as a whole posted losses in the prior two years too, hurt mostly by bad loans. But the 2017/18 loss is the highest ever in their history.

Gross non-performing loans at the 21 banks rose about 15 per cent from three months earlier to 8.96 trillion rupees ($133 billion) at the end of March. Bad loans as a percentage of total loans also rose at most banks, with IDBI Bank clocking the highest bad-loan ratio of 27.95 per cent, followed by Indian Overseas Bank's 25.28 per cent.

The bad-loan surge and the record losses come at a time when New Delhi has drawn up a 2.11 trillion-rupee, two-year, plan to recapitalise the state lenders which account for two-thirds of the country's banking assets in its efforts to kick-start lending growth.

However, some fear that most of the banks will be left with no funds for growth after meeting provision requirements and higher capital ratios mandated by global Basel III banking rules to be fully effective by March 2019.

For the fourth quarter alone, total losses in the state-run banking sector were 626.81 billion rupees or 6.26 lakh crore.

India's state-run banks posted a combined loss of 853.7 billion rupees or 8.5 lakh crore ($12.65 billion) in the fiscal year ended this March, according to data compiled by Reuters, as their provisions for bad loans surged following stricter central bank rules. All but two of the 21 banks in which India owns a majority plunged into losses in the March quarter after the Reserve Bank of India in February withdrew half a dozen loan restructuring schemes and put in place other curbs. For the fourth quarter alone, total losses in the state-run banking sector were 626.81 billion rupees or 6.26 lakh crore ($9.30 billion) - negating modest profits at Indian Bank and Vijaya Bank. To be sure, state banks as a whole posted losses in the prior two years too, hurt mostly by bad loans. But the 2017/18 loss is the highest ever in their history. Gross non-performing loans at the 21 banks rose about 15 per cent from three months earlier to 8.96 trillion rupees ($133 billion) at the end of March. Bad loans as a percentage of total loans also rose at most banks, with IDBI Bank clocking the highest bad-loan ratio of 27.95 per cent, followed by Indian Overseas Bank's 25.28 per cent. The bad-loan surge and the record losses come at a time when New Delhi has drawn up a 2.11 trillion-rupee, two-year, plan to recapitalise the state lenders which account for two-thirds of the country's banking assets in its efforts to kick-start lending growth. However, some fear that most of the banks will be left with no funds for growth after meeting provision requirements and higher capital ratios mandated by global Basel III banking rules to be fully effective by March 2019.

Hurt by bad loans, India's public sector banks post highest ever loss of Rs 8.5 lakh crore in 2017-18

India&#39;s cabinet approved a Rs 2.11 lakh crore plan on Tuesday to recapitalise its state banks over the next two years, in a bid by Prime Minister Narendra Modi to tackle a major drag on the economy that has frustrated his attempts to boost growth.

Once the world&#39;s fastest-growing major economy, India has seen its growth rate plummet to the lowest in three years, far below levels needed to create enough jobs to absorb the million Indians joining the work force every month.

Modi&#39;s government has tried to respond by stepping up public spending, but the slowdown has stressed its finances, making it imperative for private investment to pick up the slack.

Officials privately admit they have struggled to revive private investment because state-owned banks, which provide much of the credit in the economy, are saddled with a mountain of bad debt that has crimped their ability to offer new credit.

The decision to recapitalise the banks is meant to clear that bottleneck, Finance Minister Arun Jaitley said at a press conference in New Delhi.

&quot;The decision to recapitalise public sector banks with 2.11 lakh rupees will address the bank balance sheet problem and push growth forward,&quot; Jaitley said.

By some estimates, banks need as much as $65 billion in additional capital by March 2019 to fill the hole left by soured loans and to meet new regulatory capital requirements.

The official announcement, which was followed by a series of tweets from government ministers holding it up as &quot;unprecedented&quot;, comes after a flurry of activity in the government over the past few weeks, driven by the prime minister&#39;s office.

Modi, who swept to power in a landslide victory for his Bharatiya Janata Party (BJP) in 2014 promising a reform agenda to revive economic growth, faces state elections later this year and a re-election bid by 2019.

He has faced criticisms after a surprise scrapping of high-value bank notes last November and a new goods and services tax effected earlier this year disrupted businesses across the country.

People close to Modi have previously told Reuters he wants to control the political damage and ensure the economic slowdown remains temporary.

Mohan Guruswamy, an economist in New Delhi, said the government should have taken action three years ago to revive the banking sector.

&quot;Now it&#39;s more expensive, and we will not see results soon,&quot; Guruswamy said.

Fiscal consolidation

Finance ministry officials said the bank recapitalisation would be followed by a series of reforms in the sector. They said the details would come later.

Of the planned 2.11 lakh crore rupees sum, recapitalisation bonds will account for 1.35 lakh crore rupees, while Rs 76,000 crore will come from budgetary support and equity issuance, said Rajiv Kumar, India&#39;s financial services secretary.

It was not immediately clear what the impact will be on the country&#39;s fiscal deficit, which Jaitley aims to keep at 3.2 percent of GDP for the current fiscal year to March.

&quot;India&#39;s banking was the weakest link in the revival of the economy,&quot; said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a Delhi-based think-tank partly funded by the finance ministry. &quot;The government should complete the process as early as possible.&quot;

Bhanumurthy added that the move might have an impact on the government&#39;s fiscal deficit target this year.

Twenty one state-run banks account for more than two-thirds of India&#39;s banking assets. But they also account for a bulk of the record 9.5 trillion Indian rupees ($145 billion) of soured loans.

In addition to repairing their balance sheets, the banks need billions of dollars in new capital to meet global Basel III banking rules, due to fully kick in by March 2019.

Fitch Ratings estimates Indian banks will need $65 billion of additional capital by March 2019 to meet Basel III global banking rules. Moody&#39;s expects the top 11 state lenders alone will need nearly $15 billion.

Bank stocks rallied ahead of the news conference on expectations of a recapitalisation plan. The state bank index closed 3.8 percent higher.

The recapitalisation of the banks should allow them to offer credit again. They have so far been saddled with a mountain of bad debt

India's cabinet approved a Rs 2.11 lakh crore plan on Tuesday to recapitalise its state banks over the next two years, in a bid by Prime Minister Narendra Modi to tackle a major drag on the economy that has frustrated his attempts to boost growth. Once the world's fastest-growing major economy, India has seen its growth rate plummet to the lowest in three years, far below levels needed to create enough jobs to absorb the million Indians joining the work force every month. Modi's government has tried to respond by stepping up public spending, but the slowdown has stressed its finances, making it imperative for private investment to pick up the slack. Officials privately admit they have struggled to revive private investment because state-owned banks, which provide much of the credit in the economy, are saddled with a mountain of bad debt that has crimped their ability to offer new credit. The decision to recapitalise the banks is meant to clear that bottleneck, Finance Minister Arun Jaitley said at a press conference in New Delhi. "The decision to recapitalise public sector banks with 2.11 lakh rupees will address the bank balance sheet problem and push growth forward," Jaitley said. By some estimates, banks need as much as $65 billion in additional capital by March 2019 to fill the hole left by soured loans and to meet new regulatory capital requirements. The official announcement, which was followed by a series of tweets from government ministers holding it up as "unprecedented", comes after a flurry of activity in the government over the past few weeks, driven by the prime minister's office. Modi, who swept to power in a landslide victory for his Bharatiya Janata Party (BJP) in 2014 promising a reform agenda to revive economic growth, faces state elections later this year and a re-election bid by 2019. He has faced criticisms after a surprise scrapping of high-value bank notes last November and a new goods and services tax effected earlier this year disrupted businesses across the country. People close to Modi have previously told Reuters he wants to control the political damage and ensure the economic slowdown remains temporary. Mohan Guruswamy, an economist in New Delhi, said the government should have taken action three years ago to revive the banking sector. "Now it's more expensive, and we will not see results soon," Guruswamy said. Fiscal consolidation Finance ministry officials said the bank recapitalisation would be followed by a series of reforms in the sector. They said the details would come later. Of the planned 2.11 lakh crore rupees sum, recapitalisation bonds will account for 1.35 lakh crore rupees, while Rs 76,000 crore will come from budgetary support and equity issuance, said Rajiv Kumar, India's financial services secretary. It was not immediately clear what the impact will be on the country's fiscal deficit, which Jaitley aims to keep at 3.2 percent of GDP for the current fiscal year to March. "India's banking was the weakest link in the revival of the economy," said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a Delhi-based think-tank partly funded by the finance ministry. "The government should complete the process as early as possible." Bhanumurthy added that the move might have an impact on the government's fiscal deficit target this year. Twenty one state-run banks account for more than two-thirds of India's banking assets. But they also account for a bulk of the record 9.5 trillion Indian rupees ($145 billion) of soured loans. In addition to repairing their balance sheets, the banks need billions of dollars in new capital to meet global Basel III banking rules, due to fully kick in by March 2019. Fitch Ratings estimates Indian banks will need $65 billion of additional capital by March 2019 to meet Basel III global banking rules. Moody's expects the top 11 state lenders alone will need nearly $15 billion. Bank stocks rallied ahead of the news conference on expectations of a recapitalisation plan. The state bank index closed 3.8 percent higher.

Public sector banks to get Rs 2.11 lakh crores over next two years

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Hurt by bad loans, India's public sector banks post highest ever loss of Rs 8.5 lakh crore in 2017-18

Public sector banks to get Rs 2.11 lakh crores over next two years