RBI Steps Up Loan Relief, Liquidity for India’s Virus Fight
Shaktikanta Das, governor of the Reserve Bank of India, stands for a photograph in Mumbai. (Photographer: Kanishka Sonthali/Bloomberg)

RBI Steps Up Loan Relief, Liquidity for India’s Virus Fight

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India’s central bank announced new loan-relief measures for small businesses and pledged to inject 500 billion rupees ($6.8 billion) of liquidity to support the economy against a second deadly coronavirus wave.

Some businesses will be eligible for loan restructuring to give them more time to repay debt and keep them going through the pandemic, Reserve Bank of India Governor Shaktikanta Das said in an unscheduled address on Wednesday. He also announced steps to boost credit for health care services, provide fresh lending to vaccine-makers and a bond-buying program.

The Covid-19 wave that has slammed India in recent weeks is likely to worsen before tapering off sometime later this month, forecasters warn. Pressure from industry groups has started mounting on Prime Minister Narendra Modi to impose lockdowns across the country to stem its spread, a move he has so far resisted to avoid the economic damage suffered last year.

INDIA REACT: RBI Boosts Liquidity Support to Aid Pandemic Fight

“Given the state of daily infections and the impact on economy, the announced measures are a start, but perhaps not material enough to help the financial sector,” said Saswata Guha, senior director of financial institutions at Fitch Ratings Ltd. in India. “The impact of the second wave can be much more on the small businesses and individual borrowers.”

RBI Steps Up Loan Relief, Liquidity for India’s Virus Fight

READ: World’s Biggest Covid Crisis Threatens Modi’s Grip on India

Sovereign bonds gained, with the yield on benchmark 10-year notes falling two basis points to 5.99%. Banking shares rose 1.1%, outperforming a 0.6% gain in the bellwether stocks index. The rupee weakened to 73.97 versus the dollar.

RBI Steps Up Loan Relief, Liquidity for India’s Virus Fight

“The devastating speed with which the virus affects different regions of the country has to be matched by swift-footed and wide-ranging actions that are calibrated, sequenced and well-timed so as to reach out to various sections of society and business right down to the smallest and the most vulnerable,” Das said.

Here are the key takeaways from Das’s speech:

  • RBI to buy 350 billion rupees of bonds under the ‘Government Securities Acquisition Programme’ -- India’s version of quantitative easing -- on May 20
  • Sees outlook ‘highly uncertain’ and clouded with downside risks, but doesn’t see a major change to inflation forecast
  • Central bank allowed lenders to dip into their floating provisions to set aside money for bad loans till March 31 2022
  • Small businesses can avail a fresh loan recast, provided they weren’t part of a previous program last September and were servicing debt regularly as of March 31
  • RBI will provide separate liquidity of up to 100 billion rupees ($1.4 billion) via three-year repo operations to small finance banks to lend to poor borrowers

Das has been meeting with bankers and shadow lenders in recent weeks to discuss the economic situation, possible stress to balance sheets and credit flow in the system.

Localized lockdowns imposed by Indian states to flatten the world’s fastest-rising pandemic curve have already started to impact businesses and jobs, with the potential to increase the number of problem loans.

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