Indian bank loans are drying up in a niche Indian loan market which is important for under-rated firms.
In the rupee syndicated market, there has been only one deal since April 1, around Rs 4,000 crore, placing this quarter on track for the lowest tally in fourteen years. That compares with the previous quarter’s Rs 45,240 crore when more than two dozen borrowers accessed funds.
That creates another challenge for Prime Minister Narendra Modi’s efforts to kick-start the economy, which India’s Reserve Bank forecasts will contract for the first time this fiscal year in more than four decades.
In India this year, growth in the niche Indian loan market has slowed overall in the midst of the Covid-19 pandemic. The part of the business where banks come hands to lend funds in syndication is just a small part of the total pool of funds. But the fact that it has almost completely dried up is another indication that borrowers are reluctant to provide financing because they are working towards increased bad loans linked to coronavirus.
“Risk appetite of banks has fallen further due to the impact of the lockdown on the businesses of borrowers,” according to Jindal Haria, a director of financial institutions at India Ratings & Research. “Banks have been pushing up risk premiums because of the uncertainty due to the spread of the pandemic.”
India ‘s banks had already struggled with some of the world’s highest rates of bad debt before the pandemic forced the government to choke the economy and order the world’s biggest lockdown in March. Deepening credit shortage by the nation threatens the survival of more companies.
Banks accept penalty rates to keep records of RBI deposits and have shunned a central bank program aimed at credit-hungry corporations. The government responded last month by offering the smaller firms and the non-traditional lenders that fund them $62 billion in credit lines and cash injections, while the RBI extended a niche Indian loan market moratorium until the end of August.
Last week, Moody’s Investors Service cut India’s sovereign rating to just one step above the junk and pointed to persistent stress among local lenders as a growth impediment.
It added it “does not expect the credit crunch in India’s under-capitalized financial sector to be resolved quickly.”