India is set to inject $1.8 billion of capital into state-run banks over the course of the next fiscal year, while also reducing the country's fiscal gap to its lowest in seven years.
After bad loans climbed to a six-year high, the country is aiming to bolster risk buffers as part of a wider effort to narrow India's budget deficit, which will also see it boost defence spending and cut taxes on cars, mobile phones and television sets.
As he presented the government’s interim budget to parliament for the year ending March 2015, Finance Minister Palaniappan Chidambaram said he has been buoyed by assurances from bankers that they will be able to contain nonperforming assets and recover more loans as the economy recovers.
The investment is set to help lenders boost credit, on the back of more borrowers defaulting. While the economy is still set to expand by 4.9 per cent to March next year, this is some way down on the previous decade’s 8.3 per cent annual average growth rate.
Despite this, India expects its budget deficit will narrow to 4.1 per cent of gross domestic product by March 31 2015, from an estimated 4.6 per cent in the current fiscal year, while the budget will provide funds "for several months" until a new parliament is elected.