The Government of India is planning to infuse an additional INR410bn ($5.87bn) in state-owned banks in the current fiscal year.

The new investment forms a part of the additional spending of INR859.49bn outlined in the Supplementary Demand for grants, which is tabled by the government for parliament approval.

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As the infusion will be through recapitalisation bonds, the net additional investment will be INR150.65bn this fiscal year, reported Bloomberg.

Recapitalisation of public sector banks: Background

In the last three years, the Indian government has announced multiple recapitalisation moves to strengthen the state-owned banking system in the country. In 2015, the union government made a capital infusion of INR700bn.

Due to increase in bad loans, an additional recapitalisation of INR21.1 trillion was announced last year, including the remaining INR180bn from the previous recapitalisation.

The public sector banks were required to raise INR580bn from the market, as a part of the last year’s capital infusion.

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However, the banks raised only about INR240bn. The deficit will now be made up with the new investment.

The new capital will be made available to the banks to fulfil minimum regulatory capital requirements. Banks under Prompt Corrective Action (PCA) or at risk to fall under PCA will also receive support.

It will also support the lenders which are undergoing merger process.

Earlier this year, the government pumped INR113.36bn in five state-owned banks to help them meet regulatory requirements.