* Banks to seek billions of dollars to boost capital base
* Investors expect Modi-led government to revive economy
* State-owned Syndicate, Canara, others to raise funds
By Sumeet Chatterjee
MUMBAI, May 15 Indian state banks plan to tap
capital markets for billions of dollars after a new government
takes office, executives and bankers say, betting on a revival
in credit demand and giving them a chance to shore up battered
State lenders, which control roughly 75 percent of the
banking industry, are looking to raise funds from the market
instead of relying on capital infusions from the cash-strapped
It's a shift that could set the stage for New Delhi to
follow an influential recommendation by a panel appointed by the
central bank to reduce its holdings in the lenders to below 50
The opposition Bharatiya Janata Party (BJP), led by prime
ministerial front-runner Narendra Modi, is widely expected to
form the next government. Investors are counting on a Modi-led
administration to revive faltering economic growth and corporate
Election results will be announced on Friday.
"If the government is positive and announces some policies
which are positive and conducive for investment and growth,
corporates will plan their expansion and all, which will result
in credit demand," said Sudhir Kumar Jain, chairman of 67
percent state-owned Syndicate Bank. He told Reuters
his own bank is finalising plans to raise as much as $720
million, mostly in dollar bonds.
Canara Bank, 69 percent-owned by the state, plans
to raise 15 billion rupees ($251 million) though the sale of
shares this fiscal year and expects a government equity infusion
of the same amount, Chairman R.K. Dubey told Reuters by email.
Indian state banks have been badly hit by the country's
slowest economic growth in a decade, which has stifled loan
demand and sent bad loans surging. They also need massive
amounts of funding to meet the global Basel 3 capital adequacy
requirements introduced to safeguard banks' financial health in
the wake of the 2008 global financial crisis.
The external central bank panel said on Tuesday that state
lenders will need up to $98 billion in tier 1, or core, capital
by March 2018 to meet capital rules and provide for bad loans.
The panel also recommended that New Delhi bring its
ownership of lenders below 50 percent and reduce government
influence in banks. Such measures are politically difficult but
may take on greater urgency as the new government looks to shore
up its finances and avoid a cut in India's credit rating to
'JUST THE BEGINNING'
Last year, share sales by Indian banks, mostly in the
private sector, more than halved to $756.9 million, while bond
issuance fell 20 percent to $8.4 billion, Thomson Reuters data
shows. In recent years, state banks have relied on government
capital infusions as a slowing economy and worsening asset
quality soured investor demand.
But that's about to change. "The government cannot give much
support because of the fiscal constraints," said Kuntal Sur, a
partner at KPMG.
Other state-owned banks looking to tap markets include Bank
of India Ltd, which has hired half a dozen banks to
help raise $400 million through bonds, sources with direct
knowledge said. Its chairwoman did not respond to calls for
"This is just the beginning," said the equity capital market
head of a large British bank, which has been hired by a state
bank for a likely dollar bond issue. He declined to be named as
he was not authorised to speak to the media.
"They can't postpone it any further and what better time to
do it than now? The market is awash with money and the new
government is expected to be more decisive on the economic
issues, which augurs well for the banks."
The state bank stock index has risen more than 50
percent since end-February, sharply outperforming the 13 percent
gain in the broader market in the same period.
($1 = 59.7800 Indian Rupees)
(Reporting by Sumeet Chatterjee; Editing by Tony Munroe and