India plans to sell down up to 1.6 trillion (US$26 billion) worth of stakes in state-backed banks, the Financial Times reported.
The move could herald future privatisations in the state-dominated banking sector, it said.
India’s government banks are severely undercapitalised.
Credit rating agency Fitch suggested they will need to raise US$200 billion in fresh capital by 2019 to meet Basel III banking norms and cope with a recent jump in problem loans.
Prime Minister Narendra Modi’s government has agreed to sell down stakes in 27 state-backed banks by 2019. The government’s holding will be cut to 52 percent in each case from between 56 percent and 84 percent.
The government stopped short of proposing reducing its stake below 51 per cent, which would move the institutions closer to private ownership. It said any capital raising would take place in “a phased manner”.
“While permitting banks to raise capital from the market, the banks would be advised to preserve the government holding at minimum 52 per cent,” the government said Wednesday.
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