India’s Central Bank Extends Moratorium on Loan Repayments

(Bloomberg) -- India’s central bank extended a moratorium on loan repayments for three months, in another step to provide relief for businesses struggling under the lockdown.

Reserve Bank of India Governor Shaktikanta Das announced the move after an unscheduled monetary policy meeting which also ratified an interest-rate cut intended to boost the economy.

The loan moratorium has been extended to the end of August, Das said. The RBI will also raise the proportion of loans that banks can extend to a single corporate group to 30% of their net worth, from the previous 25%, and relaxed terms for export credit facilities.

The steps may improve the banks’ balance sheets and profitability, but they’re unlikely to lead to increased lending, said Jaikishan Parmar, an analyst at Mumbai-based Angel Broking Ltd.

At 9.3%, India already has the worst proportion of bad loans in the world, and that ratio could rise by another 7 percentage points due to the coronavirus crisis, according to a McKinsey & Co. report in April.

Loan growth fell to 6% in year ended March, the lowest in nearly six decades, and is expected to slow further to between 2% and 3% in the current fiscal year, according to CRISIL Ltd., the local arm of S&P Global Ratings.

The banks’ risk aversion prompted the government to announce a package of loan guarantees for small businesses last week.

The benchmark index of bank shares fell as much as 3.6% in Mumbai trading.

©2020 Bloomberg L.P.