India will inject 112 billion rupees ($1.8 billion) of capital into state-run banks in the next fiscal year to bolster risk buffers after bad loans climbed to a six-year high.

“Banks are under strain owing to rising nonperforming assets,” Finance Minister Palaniappan Chidambaram said today in New Delhi as he presented the government’s interim budget for the year ending March 2015 to parliament. “Bankers have assured me that as the economy turns they will be able to contain the nonperforming assets and recover more loans.”

The capital infusion will help lenders boost credit as more borrowers default in an economy forecast by the government to grow 4.9 percent in the year to March 31, compared with the previous decade’s 8.3 percent annual average growth rate.

Banks’ sour loans climbed to 4.2 percent of total credit as of Sept. 30, the highest level in at least six years, from 3.4 percent last March, according to a Dec. 30 report from the central bank.

The government typically injects money into the banks it controls by buying shares. It invested 140 billion rupees in state-run lenders in the year through March 2013.

United Bank of India Ltd., a state-run lender that has the highest percentage of bad loans in the country, may receive a government capital injection to boost its risk buffers, Finance Ministry Banking Secretary Rajiv Takru said in an interview on Feb. 12 . He didn’t specify the size or timing of the possible investment.

The S&P BSE Bankex index, which tracks 12 Indian lenders, rose 0.4 percent as of 1:27 p.m. in Mumbai, compared with the benchmark S&P BSE Sensex’s 0.2 percent increase. State Bank of India, the nation’s largest lender by assets, lost 0.6 percent to 1,465.6 rupees.

Bloomberg