The government has sought Parliamentary approval to inject Rs 200 billion rupees ($2.72 billion) in state-run banks in the current fiscal year, to help lenders mitigate the expected surge in bad loans due to the pandemic.
In April, New Delhi had assured state banks that it is ready to provide capital support as the coronavirus pandemic may lead to a surge in bad loans as economic growth slows.
The pandemic’s impact is likely to push up the ratio of gross non-performing assets in the Indian banking system to at least 12.5% by March 2021, from 8.5% in March 2020, according to a report by the Reserve Bank of India.
The government has already pumped in Rs 3.5 trillion in the last five years to rescue its banks.
In February’s budget, it had not allocated any funds to support the sector and instead encouraged them to turn to India’s capital markets.
The government sought Parliament approval for a total additional spending of Rs 1.67 trillion ($22.8 billion) for the current fiscal year.
The government would use the Rs 466.02 billion to transfer to states who are finding it difficult to raise taxes and Rs 100 billion to subsidize food.