The credit line is too due to expire on March 17 with Sri Lanka having used only about two-thirds of it, mainly for medicines and food, said the sources and another person familiar with the matter.
The extension talks come as the economy improves and forex reserves rise for Sri Lanka, where huge protests took place last year amid widespread shortages of essentials after the COVID-19 pandemic hurt tourism and remittances while exposing low tax revenues.
A source at the Sri Lankan Finance Ministry said the government wanted to extend the credit line by 6-12 months because there was about US$300 million of it left unused. No agreement had been reached, said the source.
Sri Lanka's central bank said on Tuesday the country's official reserves had risen 4.5per cent to US$2.22 billion in February from a month earlier.
India has committed more than $4 billion to debt-ridden Sri Lanka in loans, credit lines and credit swaps since January this year, the Indian High Commission here said on Tuesday, as the island nation tries to navigate through its worst economic crisis since independence.