MUMBAI (AFP) – Banks led Indian stocks to record highs Wednesday after the government approved a multi-billion-dollar recapitalisation plan for state-owned lenders to help spur investment in the slowing economy.
The Bombay Stock Exchange s Sensex index crossed 33,000 points for the first time while the Nifty on the National Stock Exchange hit an all-time high of 10,340.55 in morning trade.
Soon after the opening bell the Sensex rose 1.56 percent to 33,117.33 — breaking its previous intra-day high of 32,699.86 on October 17. It later pared some of the gains and closed at 33,042.50.
The Nifty increased 1.30 percent to better its previous high of 10,251.85, also on October 17. It closed at 10,295.35.
Banks enjoyed the biggest gains, a day after Finance Minister Arun Jaitley announced that the government would inject $32 billion over the next two years to help debt-laden lenders clean up their books.
The State Bank of India soared more than 23 percent while its private competitors ICICI and Axis Bank gained more than 11 percent and eight percent respectively.
Indian banks have some of the highest levels of debt in emerging markets.
According to a September 12 Fitch ratings report, Indian banks will need $65 billion of capital by March 2019 to meet Basel III global banking rules.
Credit Suisse has said some 13 trillion rupees ($200 billion) in loans have soured, the bulk of them at public-sector banks.
The mountain of debt means banks have been stretched too thin to lend, holding back economic growth.
Growth, hit by tax overhauls and a black market clampdown, slumped to a three-year low of 5.7 percent in the fiscal first quarter.
Analysts welcomed the cash infusion but warned it could hit the country s finances.
“Though the recapitalisation announcement is a good initiative, my biggest concern is about its implementation and its impact on fiscal deficit as public-sector banks are saddled with non-performing assets,” Arun Singh, economist at Dun and Bradstreet, told AFP.
“The government needs to explain how fast is it going to implement these investments to clean up public-sector banks of their debts.”
Goldman Sachs said the cash infusion could in the near term cause a “deterioration in the fiscal position”, but that could improve in the medium term “should private-sector growth and private corporate investment spending rebound meaningfully following the easing of credit”.