A logo of the Reserve Bank of India (RBI) is seen at the entrance to its office in New Delhi, India on November 9, 2018. REUTERS / Altaf Hussain
India’s central bank on Wednesday unveiled new measures to help lenders weather the rise in bad loans and give some borrowers more time to repay debts as spike in COVID-19 infections triggers strict lockdowns in several states .
The announcement by Reserve Bank of India Governor Shaktikanta Das comes as the Department of Health reported a record daily coronavirus-related deaths and more than 300,000 new infections for the 14th day in a row. Read more
The debt moratorium will be accessible to individuals and small and medium-sized businesses that did not restructure their loans in 2020 and were classified as standard accounts until March 2021, Das said in an unscheduled virtual address.
“Small businesses and financial entities at the local level are the most affected by the second wave of infections,” Das said, announcing several measures to improve liquidity and boost lending to various sectors in need.
The moratoriums will apply to borrowers with a maximum total exposure of 250 million rupees ($ 3.39 million), Das said.
“About 90% of total borrowers fall below this limit, so restructuring can bring benefits to a large number of borrowers. We believe these measures are sufficient for now,” said Sunil Mehta, Managing Director of the Association of Indian Banks.
In the last fiscal year, the RBI introduced a unique restructuring plan for small borrowers and businesses that allowed banks to extend repayment periods up to two years.
About 800,000 borrowers with a total of loans worth 1.2 trillion rupees have enrolled in this program. This translated to less than 5% of total industry-wide loans, Mehta added.
INFLATION CONCERNS REMAIN
Many businesses in India were still returning to normal after a nationwide lockdown last year when the second wave of COVID-19 hit. As infections skyrocket and more states impose restrictions on activity, some analysts have downgraded their forecasts for economic growth.
Das, however, said the demand blow is expected to be moderate compared to a year ago, as reports show the disruption to manufacturing so far to be minimal as consumption resists. Read more .
He also said he did not expect any significant change in the RBI’s economic forecast made in April, when it forecast 2021/22 GDP growth of 10.5%.
On inflation, however, Das sounded cautious.
He said a normal monsoon will help support rural demand and overall production and ease pressure on food prices, but also noted that an increase in input costs across all sectors, in part due rising world commodity prices remains a concern.
A continued pick-up in inflation could potentially push the RBI to raise interest rates, as it is required by law to keep retail inflation in the 2-6% range.
OTHER MEASURES
The RBI also announced a special pressurized liquidity window of up to Rs.5 trillion for banks to lend to the healthcare sector with tenors of up to three years at the repo rate. It will be available until March 31, 2022.
The central bank said banks will need to maintain a COVID loan portfolio under the program and will also enjoy a 40 basis point higher return than the reverse repo rate on excess funds deposited with the RBI, to the extent of disbursed loans.
“RBI offered appropriate action and also assured the market that it would be proactive, which helped,†Mehta said.
Among other measures, the RBI announced a special 3-year long-term repo operation of Rs100 billion for small financial banks (SFBs), saying their loans to microfinance institutions can be classified as a priority sector. It also allowed banks to maintain lower reserves for advances to small borrowers.
The RBI also relaxed overdraft guidelines for state governments and said banks can use their counter-cyclical provisioning pads they hold from December 31, 2020 to fund non-performing assets with prior board approval. administration.
($ 1 = 73.8 Indian rupees)
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