Central bank (RBI) measures to support the economy and facilitate lending

Central bank (RBI) measures to support the economy and facilitate lending


An Indian naval officer walks past the logo of India’s central bank, Reserve Bank of India (RBI), in Mumbai on November 9, 2016.

Punishes Paranjpe | AFP | Getty Images

Indian bank stocks surged on Wednesday after the central bank introduced measures to stimulate lending as the coronavirus crisis continues to wreak havoc on the country.

The Nifty Bank index rose 1.35% while the Nifty PSU index – which captures the performance of Indian public sector banks – rose 1.8%. They outperformed the benchmark Clever 50, which only increased by 0.7%.

Shares of major lenders surged after the announcement and have since dropped some gains. Baroda Bank was trading 2.63% higher, IndusInd Bank added 2.51%, HDFC Bank gained 1.47%, Axis Bank gained more than 2% while National Bank of India advanced 1.28%.

RBI announces measures to facilitate loans

Reserve Bank of India will monitor the economic impact of the second wave of Covid-19 infections in India and deploy all possible resources to ease economic stress, Governor Shaktikanta Das said in a speech on Wednesday unexpected.

He announced his intention to inject 500 billion rupees ($ 6.78 billion) in cash to facilitate access to emergency health services. The move would allow commercial banks to borrow money from the central bank through repurchase agreements, or pensions, and lend it to companies linked to Covid-19.

To boost the provision of immediate liquidity for the ramp-up of Covid-related healthcare infrastructure and services in the country, the central bank will open a liquidity window of 500 billion rupees ($ 6.78 billion), with tenors of up to three years at the rate of pensions. which will be available until March 31, 2022, Das said.

The repo rate is the policy rate at which the RBI lends to commercial banks. It is currently 4%.

Das explained that under this program, banks can provide new loans to various companies and entities, including vaccine manufacturers, importers and suppliers of Covid-related vaccines and drugs, as well as manufacturers and suppliers. oxygen and ventilators.

Banks would be able to lend to borrowers directly or through intermediary financial institutions which are regulated by the central bank and lenders would have to create a “Covid loan portfolio” under this program, according to the governor of the central bank.

The RBI also announced other measures to help Indian micro, small and medium-sized enterprises and financial entities at the local level which are suffering the “biggest blow” from the second wave of infections. This includes allowing some small borrowers to extend their repayment period – provided they did not restructure their loans last year and were classified as “standard” accounts as of March 31.

An uncertain economic recovery

The South Asian nation is currently facing a devastating second wave that has forced several states to lock down while others have stepped up social restrictions. Tuesday, India has gone through 20 million cases of Covid-19 and its official death toll has exceeded 222,000 deaths.

Economists have warned that the current crisis is likely to delay India’s economic recovery. Last year, a two-month nationwide lockdown derailed growth and plunged the South Asian economy into a technical recession.

Local media reports, citing sources, said banks have turned to the RBI for relief measures to help borrowers tackle the second wave of Covid-19 and ease lender balance sheets in light of a possible increase in bad debts.

Das also virtually met with CEOs and CEOs of some non-bank financial institutions and microfinance institutions on Monday to discuss, among other things, the potential stress on the balance sheets of these companies.

India’s central bank last cut its repo rate in May 2020 during an emergency meeting to counter the economic fallout from the nationwide lockdown month.

The RBI cut the repo rate by 40 basis points in May and 75 basis points in March last year, reducing the benchmark rate by 115 basis points in 2020. In 2019, the central bank reduced rates of 135 basis points.

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