India's $32 billion bank recap plan spurs share gains

MUMBAI/NEW DELHI (Reuters) - Indian banking shares soared on Wednesday, sending indexes to record highs after the cabinet approved a $32.4 billion plan to recapitalise its state banks over the next two years, although it was unclear how the injections will be structured.

The gains came after India’s cabinet late on Tuesday cleared a plan to inject 2.11 trillion rupees ($32.4 billion) into state-run lenders over two years.

With the plan, Prime Minister Narendra Modi is bidding to tackle a major drag on the economy that has frustrated his attempts to boost growth.

Investors sent shares of State Bank of India, the biggest lender, up as much as 29 percent to its highest since January 2015. The benchmark NSE Nifty rose as much as 1.3 percent, touching a record high.

But details of how New Delhi will fund the injections were not available. Also, questions remain about whether these would add to India’s fiscal deficit at a time markets are already doubtful it can meet its 3.2 percent target of gross domestic product for the year ending in March 2018.

The planned injections still fall short of some estimates, including from credit rating agencies, of what’s required. Fitch Ratings estimates Indian banks need $65 billion of additional capital by March 2019 to meet Basel III global banking rules.