The government will infuse over Rs 88,000 crore into 20 public sector banks (PSBs) before March 31.
This will enable banks to give more loan for investment and help create jobs, Finance Minister Arun Jaitley said on Wednesday.
The finance minister also announced a slew of reforms in PSBs' loan sanctioning methods.
Unveiling the details of this fiscal's bank recapitalisation plan of Rs 88,139 crore, Jaitley said Rs 35,828 crore will be given to nine banks that are in the prompt corrective action (PCA) category, including State Bank of India (SBI) and Punjab National Bank.
Eleven banks which have taken corrective action, including IDBI, Central Bank of India and UCO Bank, will get Rs 52,311 crore.
"Capital infusion will be performance-based. Whole time directors of PSBs will be assigned theme-wise reforms for implementation," Jaitley said.
All loans above Rs 250 crore will now undergo specialised monitoring.
"We have inherited a major problem, this is the problem of the past. We are bringing a mechanism to make sure what happened in the past is not repeated," Jaitley said.
The RBI had late last year put many PSBs under (PCA) framework due to their weak balance sheets, high non-performing assets (NPAs) and negative return on assets among other things.
The government had in October announced a capital infusion plan into PSBs to the tune of Rs 2.11 lakh crore but it was not clear how much would be disbursed in this financial year.
Given that the government's fiscal deficit position was not healthy, it was expected that the bulk of the money would be given only in the next financial year.
However, taking cognisance of the job scenario and credit growth to investment sectors, the government decided to front-load the capital infusion, an official said.
Of the entire sum, Rs 80,000 would come through recapitalisation bonds and the remaining from gross budgetary support announced in the last Budget.
The bonds will be longer dated staggered over 10-15 year maturity.
"The capital infusion will be cash-neutral," Economic Affairs Secretary Subhash Garg said, meaning it would not impact fiscal deficit this year.
The banks can hold the bonds in their books and can sell in the market as and when they require cash.
The move is also expected to help banks write off their NPAs.
Gross NPAs of PSBs are expected to rise to Rs 9.5 lakh crore by March from Rs 8 lakh crore in the same month last year, according to industry body Assocham and rating agency Crisil.