Biggest Indian Bank Surges Most in Seven Years on Capital Boost 

• RBI allows banks’ property values to be added to core capital
• Change in capital rules to align with Basel III standards: RBI

State Bank of India shares surged the most in almost seven years, leading a rally in the nation’s lenders after the central bank eased rules allowing them to bolster capital ratios.

State Bank, the nation’s largest lender by assets, jumped 12 percent, the biggest gain since May 2009, in Mumbai. Bank of Baroda and Punjab National Bank added 6.8 percent. The S&P BSE Bankex Index, which tracks 10 lenders, advanced 4.9 percent.

The Reserve Bank of India’s amendments allow banks to consider reserves associated with property revaluations and foreign-currency translations to be considered as common-equity Tier 1 capital. It made the modification to further align the definition of regulatory capital with global Basel III standards, the central bank said in a statement late Tuesday. The additional capital will help banks boost buffers while complying with a deadline set by central bank Governor Raghuram Rajan to clean up their balance sheets.

The rule change can free up as much as $8 billion in capital for state-run banks, analysts including Aashish Agarwal at CLSA Ltd. said in a note to clients on Tuesday. This should “abate capital adequacy concerns” for state-run lenders, Agarwal said.

Rising bad debts and inadequate risk buffers at India’s state-run banks have been hindering Prime Minister Narendra Modi’s attempts to revive lending growth. Rules requiring government stakes of at least 51 percent have curtailed state banks’ ability to sell shares, making them less capitalized than privately owned lenders.

SBI’s Tier 1 capital ratio will improve by at least 100 basis points as the Mumbai-based lender adds the amount from property revaluations and other balance-sheet items to the capital buffer, Chief Financial Officer Anshula Kant said on Wednesday in an interview with Bloomberg TV India. SBI’s real estate assets were valued at about 250 billion rupees four years ago, she said.

Government-controlled banks will require infusions of 1.8 trillion rupees in equity to comply with Basel III, Finance Minister Arun Jaitley said in August. He allocated 250 billion rupees to recapitalize state-owned lenders for the year starting April 1, the same as the current fiscal year’s outlay.

“The RBI’s moves yesterday are quite positive,” Navneet Munot, chief investment officer at SBI Funds Management Pvt., which has $15 billion in assets, said on Bloomberg TV India. This measure in addition to the capital infusion target set in the budget will take care of lenders’ capitalization needs, Munot said.

Source: Bloomberg

---