The Government of India is set to recapitalise the public sector lender Dena Bank with INR41bn ($556.83m) capital infusion prior to the proposed merger with Bank of Baroda and Vijaya Bank.

The capital will enable the bank to shore up its balances as it reels under the weight of non-performing assets.

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A senior government official was quoted by The New Indian Express as saying: “While the process of the merger is on, the government is ensuring that the financial health of the merger remains sound.

“We are considering the infusion of capital to the tune of Rs 4,100 crore in Dena Bank, which will help clean its loan book along with other measures (it) is already taking.”

The gross NPA ratio of Dena Bank was 22.69% and net NPA ratio stood at 11.04% as on 30 June. The bank had reported a loss of INR7.22bn ($98m) on a total income of INR24.1bn ($327.31m) in Q1.

As a result, the Reserve Bank of India has placed the bank under prompt corrective action.

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Recently, Allahabad Bank raised about INR17.9bn ($243.74m) from the Government of India (GoI) in lieu of 7.6% stake.

Earlier in September, the Indian government infused INR54.31bn ($747.71m) capital into state-owned lender Punjab National Bank (PNB) in the wake of a major banking fraud of more than $1.77bn earlier this year significantly upsetting its financial robustness.

In July, the government also approved a recapitalisation plan of INR113.36bn ($1.65bn) for five state-owned banks, including the PNB, Corporation Bank, Indian Overseas Bank, Allahabad Bank, and Andhra Bank to help them fulfil regulatory requirements.