The Centre is preparing to pump in a higher-than-anticipated capital sum into poorly performing state-owned banks, government sources said, a move that could see the infusion of as much as $34 billion additionally and make it harder to hit planned deficit targets.

The Centre in August had pledged to put in ₹70,000 crore ($10.2 billion) into state-run banks through four years to March 2019 as part of a broader banking reforms programme.

It had then said the lenders would raise another ₹110,000 crore from the financial markets.

But a surge in provisions for bad loans in a central bank-directed balance sheet clean-up exercise has sent several lenders into losses, hammering their stock prices and limiting their ability to secure external funding as the economy wobbles.

Impact on Budget It also means Finance Minister Arun Jaitley will have to squeeze the national Budget to foot the bill.

Two senior government officials with direct knowledge of the matter said a new capital infusion plan was being formulated that Jaitley might propose as early as the end of this month, when he presents the federal Budget.

India Ratings and Research, a local affiliate of Fitch, reckons the Centre will have to cough up at least ₹126,000 crore, nearly double of what it originally planned, to keep its current ownership of public sector banks. But the figure might swell to as much as ₹300,000 crore, if the lenders fail to raise funds from the markets, it said.

“Right now it’s a tightrope walk,” said Abhishek Bhattacharya, co-head of financial institutions at India Ratings.

A sharp slowdown in India’s nominal economic growth, which drives tax revenues, has already made it tougher for Jaitley to meet a target of trimming the fiscal deficit to 3.5 per cent of the GDP in FY17, from the 3.9 per cent budgeted for this year.

Bhattacharya said the extra burden of capital infusion could add 35-40 basis points every year to the deficit over the next three years.

In a Twitter post last Friday, the finance ministry quoted Jaitley as saying that the Centre was “committed to protect banks and give them the capital requirements”.

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