Indian Banks Get $50 Billion of Cash, Borrowers More Time to Pay

(Bloomberg) --

India eased reserve ratios for banks to goad them to boost lending and suspended loan repayments to help companies and individuals tide over a financial crunch stemming from a nationwide lockdown to fight the coronavirus.

“Such steps, in turn, will go a long way to prevent financial stress in the real economy and ensure continuity of businesses and provide relief to borrowers in these extraordinary times,” Reserve Bank of India Governor Shaktikanta Das said in an online broadcast. Individuals or corporates missing interest payments during the moratorium won’t be considered in default, he said.

The measures were among a raft of monetary easing steps announced Friday, including sharp cuts to policy rates and a $50 billion cash line to lenders. They are aimed at boosting credit and easing financial stress in a sector that was battered by a crisis among shadow lenders even before the virus outbreak.

“RBI is asking all to pause from looking at the rule book and pull out all stops to revive credit growth,” said Ravikant Bhat, a Mumbai-based analyst at IndiaNivesh Securities Ltd. “The $50 billion liquidity line promised by the RBI to lenders and a stay on loan repayments will ease cash crunch issues among individuals and businesses.”

About 600 billion rupees ($8 billion) of loans advanced by State Bank of India will be eligible for the regulator’s moratorium, Rajnish Kumar, chairman of the nation’s biggest lender, said on a conference call on Friday.

India has the worst bad loan ratio among major economies and earlier this month engineered its biggest-ever bank rescue to maintain confidence in the financial system. The worsening coronavirus outbreak at a time when corporates are faced with record local-currency bond maturities had threatened to freeze liquidity.

A free flow of credit is crucial to reviving an economy that was set to grow at the slowest pace in more than a decade even before the nation was locked down.

Other Details:
  • Three-month moratorium on payment of term loans outstanding as of March 1
  • Interest payment on working capital facilities deferred by 3 months
  • Repayment relaxation won’t result in downgrade of assets
  • Implementation of capital conservation buffer deferred to Sept. 30
  • Banks’ cash reserve ratio cut by 100 bps to 3%
  • Offers long-term targeted repo worth 1 trillion rupees

The easing measures are in line with steps taken by authorities around the world, who are trying to keep households, small businesses and industries afloat as recession threatens economies. Spending pledges have included cash payments to households, while many central banks have lowered interest rates and eased liquidity.

“Financials will get breathing space” as far as recovery and recognition of bad loans are concerned, said Dhiraj Relli, managing director and chief executive officer at HDFC Securities Ltd. “It could elevate sentiments temporarily, but the main impact will be visible post the lifting of lockdown.”

©2020 Bloomberg L.P.

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