RBI Steps Up Loan Relief, Liquidity to Aid India’s Virus Fight

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India’s central bank announced new loan-relief measures for small businesses and pledged to inject 500 billion rupees ($6.8 billion) of liquidity, including fresh lending to vaccine-makers, in a bid to buffer the economy against a deadly new wave of virus cases.

Some small businesses will be eligible for loan restructuring to give them more time to repay such debt and keep them going through the pandemic period, Reserve Bank of India Governor Shaktikanta Das said in an unscheduled address on Wednesday. He also announced steps to boost credit for expanding health care services and a calendar for bond-buying.

“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.

Sovereign bonds gained, with yield on the benchmark 10-year bonds falling two basis points to 6%. The bellwether stocks index climbed 0.5%, while the rupee traded little changed at 73.8425 per dollar.

Here are some key takeaways from Das’s speech:

• RBI to buy 350 billion rupees of bonds under ‘Government Securities Acquisition Programme’ -- India’s version of quantitative easing -- on May 20
• RBI sees outlook ‘highly uncertain’ and clouded with downside risks, but doesn’t see a major change to inflation forecast
• Central bank allowed lenders to dip into their floating provisions to set aside money for bad loans
• Small businesses can avail a fresh loan recast, provided they weren’t part of a previous program last September and were servicing debt regularly as of March 31

Das has been meeting with bankers and shadow lenders in recent 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 world’s fastest-rising pandemic curve has already begun hurting businesses and jobs, with potential to inflate bad loans at Indian banks.

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