(Bloomberg) -- India’s central bank took steps to alleviate a credit crunch at shadow banks and relaxed rules for lending to consumers as part of measures to boost the slowing economy.
The Reserve Bank of India, which also cut benchmark interest rates to the lowest since 2010 on Wednesday, increased the exposure limit for banks to a single non-banking finance company to 20% of Tier 1 capital from 15% before. It also reduced the risk weight on consumer credit excluding card receivables to 100% from about 125%.
After a year of debt defaults by Infrastructure Leasing & Financial Services, India’s shadow banking woes have entered into a deeper second phase with cash-strapped lenders including Dewan Housing Finance Corp. and Anil Ambani’s Reliance Capital Ltd. struggling to repay debt on time.
The RBI also allowed banks to classify loans to NBFCs for agriculture, small businesses and home mortgages as priority-sector lending, in a bid to ensure credit flows to those key contributors to economic growth and employment.
“It is our endeavor to ensure that there is no collapse of a large or systemically important non-bank finance company,” Governor Shaktikanta Das said in a briefing. “We are monitoring the situation.”
The central bank has been keeping a close eye on the shadow banking sector and communicating with the large lenders for any sign of systemic risk, Das said in an interview last month.
Banks that lend to the shadow finance industry are staring at another round of potential soured debt just after getting to grips with an earlier bad-loan crisis. Concerns over the ability of NBFCs to repay on time have prompted lenders to tighten liquidity lines, adding to solvency problems for these institutions.
©2019 Bloomberg L.P.
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