The Reserve Bank of India (RBI) yesterday announced new loan relief measures for small businesses and pledged to inject 500 billion rupees (US$6.8 billion) of liquidity to support the economy against a second deadly COVID-19 wave.
Some businesses would be eligible for loan restructuring to give them more time to repay debt and keep them going through the COVID-19 pandemic, RBI Governor Shaktikanta Das said in an unscheduled address.
He also announced steps to boost credit for healthcare services, provide fresh lending to vaccine makers and a bond-buying program.
Photo: Bloomberg
The COVID-19 wave that has slammed India in the past few weeks is likely to worsen before tapering off sometime later this month, forecasters said.
Pressure from industry groups has started mounting on Indian Prime Minister Narendra Modi to impose lockdowns across the nation to stem its spread, a move he has so far resisted to avoid the economic damage suffered last year.
“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.”
“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.
Following are key takeaways from Das’ speech:
‧ The RBI is to buy 350 billion rupees of bonds under the “Government Securities Acquisition Program” — India’s version of quantitative easing — on May 20.
‧ The inflation outlook is “highly uncertain” and clouded with downside risks, but the central bank does not see a major change to its forecast
‧ Lenders can to dip into their floating provisions to set aside money for bad loans until March 31 next year.
‧ Small businesses can avail of a fresh loan recast, provided they were not part of a previous program in September last year and were servicing debt regularly as of March 31
‧ The RBI is to provide separate liquidity of up to 100 billion rupees via three-year repo operations to small finance banks to lend to poor borrowers
Das has been meeting with bankers and shadow lenders in the past few 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 pandemic curve have already started to affect businesses and jobs, with the potential to increase the number of problem loans.
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