NEW DELHI — India approved on Tuesday a $32 billion recapitalization plan for state-owned banks in a move to help them clean up their books and revive investment in a slowing economy.

The government will infuse this sum over the next two years to “strengthen the lending capacity of banks to spur growth”, finance minister Arun Jaitley told reporters.

Indian banks have some of the highest levels of debt in emerging markets.

According to Credit Suisse, some 13 trillion rupees ($200 billion) in loans have soured, the bulk of them at public-sector banks.

The mountain of debt means that banks have been stretched too thin to lend for fresh investments, holding back economic growth.

The government’s push comes at a time when the Indian economy, hit by tax overhauls and a black market clampdown, has slumped to a three-year low of 5.7 percent in the first quarter.

India’s bad loan problem received national attention last year in March when beer and airline tycoon Vijay Mallya fled to the UK to avoid paying nearly $1 billion in loans that he owed banks.

In May New Delhi gave the central bank greater powers to intervene in cases of bad loans and to order banks to take specific measures to deal with bad debts under the provisions of the existing bankruptcy laws.

The decision to recapitalize the banks is meant to clear that bottleneck, Finance Minister Arun Jaitley said at a press conference in New Delhi.

“The decision to recapitalise public sector banks with 2.11 trillion rupees will address the bank balance sheet problem and push growth forward,” Jaitley said.

By some estimates, banks need as much as $65 billion in additional capital by March 2019 to fill the hole left by soured loans and to meet new regulatory capital requirements.

The official announcement, which was followed by a series of tweets from government ministers holding it up as “unprecedented”, comes after a flurry of activity in the government over the past few weeks, driven by the prime minister’s office.

Modi, who swept to power in a landslide victory for his Bharatiya Janata Party (BJP) in 2014 promising a reform agenda to revive economic growth, faces state elections later this year and a re-election bid by 2019.

He has faced criticisms after a surprise scrapping of high-value bank notes last November and a new goods and services tax effected earlier this year disrupted businesses across the country.

People close to Modi have previously told Reuters he wants to control the political damage and ensure the economic slowdown remains temporary.

Mohan Guruswamy, an economist in New Delhi, said the government should have taken action three years ago to revive the banking sector.

“Now it’s more expensive, and we will not see results soon,” Guruswamy said.

Finance ministry officials said the bank recapitalisation would be followed by a series of reforms in the sector. They said the details would come later.

Of the planned 2.11 trillion rupees sum, recapitalisation bonds will account for 1.35 trillion rupees, while 760 billion rupees will come from budgetary support and equity issuance, said Rajiv Kumar, India’s financial services secretary.

It was not immediately clear what the impact will be on the country’s fiscal deficit, which Jaitley aims to keep at 3.2 percent of GDP for the current fiscal year to March.

“India’s banking was the weakest link in the revival of the economy,” said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a Delhi-based think-tank partly funded by the finance ministry. “The government should complete the process as early as possible.”

Bhanumurthy added that the move might have an impact on the government’s fiscal deficit target this year.

Twenty one state-run banks account for more than two-thirds of India’s banking assets. But they also account for a bulk of the record 9.5 trillion Indian rupees ($145 billion) of soured loans.

In addition to repairing their balance sheets, the banks need billions of dollars in new capital to meet global Basel III banking rules, due to fully kick in by March 2019.

Fitch Ratings estimates Indian banks will need $65 billion of additional capital by March 2019 to meet Basel III global banking rules. Moody’s expects the top 11 state lenders alone will need nearly $15 billion.

Bank stocks rallied ahead of the news conference on expectations of a recapitalization plan. The state bank index closed 3.8 percent higher. — Agencies