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 | UKTN | 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 in the country.
The Nifty Bank index rose 1.36% while the Nifty PSU index – which captures the performance of Indian public sector banks – rose 1.38%. They outperformed the benchmark Nifty 50, which only gained 0.61%.
Shares of major lenders surged after the announcement. Bank of Baroda grew 2.2%, IndusInd Bank added around 2%, HDFC Bank gained 0.8%, Axis Bank grew 2.05% while State Bank of India rose 0 , 85%.
RBI announces measures to facilitate loans
The 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 an unscheduled speech on Wednesday.
His announcement came as India took another grim milestone on Wednesday. Coronavirus deaths have increased from a record 3,780 in the past 24 hours, with a total of reported deaths of more than 226,000, according to the latest data from the Department of Health. India on Tuesday became the second country after the United States to cross 20 million reported cases.
The governor of the central bank has announced plans to inject 500 billion rupees ($ 6.78 billion) in liquidity 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 bolster 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 that are regulated by the central bank and lenders would have to create a “Covid loan portfolio” as part of the 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 certain small borrowers with exposures of up to Rs 250million to restructure their loans by September 30, 2021 – provided they did not restructure their loans last year in under previous programs and have been 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. India went through 20 million cases of Covid-19 on Tuesday and its official death toll exceeded 222,000.
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, citing sources, said banks have turned to the RBI for relief measures to help borrowers tackle the second wave of Covid-19 and ease lenders’ balance sheets at the light of a possible increase in bad debts.
Das also practically met on Monday with CEOs and chief executives of selected nonbank financial institutions and microfinance institutions to discuss, among other things, the potential strain on those companies’ balance sheets.
India’s central bank last lowered its repo rate in May 2020 in an emergency meeting to counter the economic fallout from the month’s national lockdown.
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 rate of 135 basis points.