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Coronavirus: India tries to revive economy by pushing banks to lend more

Lenders have been asked to focus particularly on 10 states in northeast and central India, regions where less credit has been made available than elsewhere

Reuters  |  New Delhi | Mumbai 

RBI move a temporary fix to PSBs' woes
Policymakers are worried the coronavirus outbreak could curb economic growth for at least the first two quarters of this year, so are looking to drive up lending to bolster investor and consumer sentiment

India is pushing state-run banks to approve new loans amounting to Rs 500-600 billion ($6.8-8.2 billion) by the end of March, according to two government sources, as authorities seek to shore up a stuttering economy as the spreads.

Public-sector banks have received nearly 8 million new applications for loans, mainly from rural households and small businesses, and the government expects up to 6 million of them to be approved by the end of the month, said a senior finance ministry official with direct knowledge of the matter.

Policymakers are worried the outbreak could curb economic growth for at least the first two quarters of this year, so are looking to drive up lending to bolster investor and consumer sentiment, according to the second government source.

Lenders have been asked to focus particularly on 10 states in northeast and central India, regions where less credit has been made available than elsewhere, said the person. Both sources declined to be named as the discussions are private.

"India is facing a new challenge in coronavirus, and the government is trying to push bank credit as much as possible," the finance ministry official told Reuters.

Indian officials said on Wednesday that the total number of cases in the country had jumped to 28, up from six earlier in the week.

Banks' outstanding credit fell by nearly 635 billion rupees ($8.67 billion) between Jan. 31 and Feb. 14, data released by the Reserve Bank of India (RBI) showed last week.

The New Delhi government fears credit growth could dry up further after data showed that corporate capital investment contracted 5.2 per cent in the October-December quarter from a year earlier, after clocking a 4.1 per cent decline in the previous quarter.

This helped drag economic growth to 4.7 per cent in the last three months of 2019, the slowest pace in more than six years.

Growth in bank lending to farming and corporate clients decelerated in January compared with the same period a year earlier, according to RBI data.

Some bankers remain reticent to increase lending, though.

The chief financial officer of one public-sector bank said that, even though it had the capacity to boost credit, it was being cautious because indiscriminate lending in a slowing economy would only amplify the sector's bad debt problems.

First Published: Thu, March 05 2020. 06:49 IST
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