New Delhi, Sept. 22: The finance ministry is considering a special category of bonds to be issued by bad asset-hit public sector banks that will shore up their capital base, enabling them to lend more and lift the economy out of the current slowdown.

The North Block is weighing these recapitalisation bonds for the state-run banks, which will inject the much needed funds to spur the GDP growth that had slipped to 5.7 per cent in the first quarter of the current fiscal.

The government is committed to recapitalise state-run banks by Rs 10,000 crore during this fiscal through budgetary allocations. Officials say there is a thinking that another Rs 20,000-30,000 crore may be raised through off-budget bonds subscribed by financial institutions, including foreign lenders.

At the same time, some of the problematic banks such as IDBI may be treated in a different way. "There is a separate brainstorming for banks such as IDBI," said officials.

They did not rule out the sale or merger of these banks.

"However, increased capitalisation of PSU banks remains a concern and will be addressed," said the officials. A decision on the proposed capitalisation bonds - with government guarantee - will be made after discussions with the Reserve Bank of India.

These will be in addition to the bonds that individual banks will float.

"The government should consider providing financial support in recapitalising banks to the tune of Rs 30,000 crore, which will help in credit flow to private sector and enhance public sector spending," N.R. Bhanumurthy of the National Institute of Public Finance and Policy said.

For the first time in two decades, state-run banks reported a fall in advances last year - from Rs 1.35 lakh crore in 2015-16 to Rs 1.34 lakh crore.

One reason for the fall is the absence of quality assets coupled with reluctance to lend because of bad loans. However, analysts said inadequate capitalisation of banks also led to the fall in advances.

Rating agency Fitch says state-run banks will need about Rs 1.64 lakh crore of additional capital by 2019, keeping in view the problem of bad loans, which are at a staggering Rs 6.1 lakh crore.

The extra capital is required to increase lending and make provisions for the bad loans. "The gross non-performing loan ratio reached 9.7 per cent in financial year 2017, up from 7.8 per cent in the previous fiscal," Fitch said.

RBI deputy governor Viral Acharya had also flagged the dangers of delaying capitalisation.

Acharya in a note argued that the global economic crisis in 2008 had worsened because the western banks did not have adequate capital support to lend more. The note suggested that bank capitalisation was directly proportional to growth.

According to officials, the move to recapitalise banks will be undertaken even as the government finalises plans to consolidate state-run banks through mergers.

The Union cabinet has already given its in-principle approval for another round of mergers. The government had earlier this year merged the five subsidiaries of SBI with the parent. A group of ministers is now working out the modalities for the second round of mergers.