SINGAPORE: India’s biggest bank overhaul in decades to merge state-run lenders beset with bad loans and low capital hasn’t convinced investors to increase holdings of the shares.
Fund managers including Aberdeen Standard Investments Ltd and JPMorgan Chase & Co are shying away from increasing their positions in government-owned lenders. As well as poor asset quality at the banks, they cited uncertainty about the mergers’ time-line.
A prolonged shadow-banking crisis and hurdles in bankruptcy rules have left India holding the world’s worst bad-debt pile. Seeking to spur lending needed to revive economic growth from a six-year low, Prime Minister Narendra Modi’s government said Aug 30 that it plans to merge smaller banks to create four new lenders that would hold more than half of the Indian banking industry’s assets.
“State run banks do have a large asset-quality burden, ” said Rukhshad Shroff, who oversees more than $660 million in India equities at JPMorgan Chase & Co’s asset management unit in Hong Kong. “Many also have very little capital. There is some evidence to show that digesting large mergers ends up being more complicated than was originally expected.”
Mergers at a time when economic growth is at its slowest pace in six years “will prove distracting” to state-owned lenders, according to Kristy Fong, who helps oversee US$669.6bil globally in equities as Asian investment director at Aberdeen Standard Investments Ltd in Singapore. There is also a “significant gap in quality between the better-run and better-capitalised private sector banks and their state-run peers, ” she said. — Bloomberg