With the government providing a Rs 20 lakh crore stimulus in view of COVID-19, the country may need to inject up to Rs 1.5 lakh crore into its state-owned lenders as their pile of soured assets are expected to double during the pandemic.
Initially, the government considered a budget of around Rs 250 billion for bank recapitalizations but that has risen significantly with loan defaults likely to rise as businesses take a severe hit from nationwide lockdowns to tackle the coronavirus.
Union finance ministry did not respond to a request for comment during working hours. The capital plans were still being discussed and a final decision could be taken in the second half of the fiscal year. Indian banks were already saddled with Rs 9.35 lakh crore of non-performing assets at the end of September 2019, or roughly 9.1% of their total assets at the time.
A nationwide lockdown entering its third month is expected to lead to a contraction in economic growth in the current financial year, according to several global rating agencies, which have also changed their outlook on the banking sector to negative. Economic recovery is likely to take a long time.