India's state-run banks face major obstacles in their plans to raise as much as $60 billion in new capital over the next few years, with investors skeptical about the prospects for most of them and workers wary of the government's grip loosening.
With the tailwind of a strong recent stock market performance on optimism about a new government led by Prime Minister Narendra Modi, the banks are preparing to raise capital to meet upcoming global regulations and to build a buffer against rising bad loans. Banks such as State Bank of India have appointed advisers for share sales.
But with their asset-quality deteriorating and credit demand slackening due to a sluggish economy and politically motivated lending, tapping the capital markets won't be easy for them.
Moreover, about a quarter of India's 26 state-owned lenders have a leadership vacuum. United Bank of India, which has the country's heaviest bad-loan burden, has had no chairman for nine months now.
"When you don't know what's going on, and why what's being done is done, you can't responsibly put your money," said Eric Mookherjee, a Paris-based fund manager at Shanti Asset Management, who has one state-run lender - Bank of Baroda - in his portfolio.
New Delhi's stakes in the state-run banks range from 56 percent to 84 percent. If these lenders, who account for 70 percent of India's total outstanding loans of about $1 trillion, are unable to raise the full capital sought or only some of it, the government will have to step in.