MUMBAI/NEW DELHI (Reuters) – The Indian government on Friday announced a fresh capital infusion of about $10 billion into debt-burdened state banks and credit guarantees to support shadow lenders in a bid to boost lending and revive the economy.
India’s economy has sagged in the past year partly because many small and medium-sized businesses and consumers have found it tough to borrow from the banks, or from the shadow lenders, officially known as non-banking financial companies (NBFCs).
Banks - NBFCs - Debt - Ability
This is because some of the banks and NBFCs are laden with bad debt which has affected their ability to lend.
Economists, credit rating agencies and some of the lenders welcomed the moves, saying they are vital if India is to reform its banking sector and grow the economy at rates above 8% targeted by Prime Minister Narendra Modi’s government.
Economy - Rate - % - Quarter - Low
The economy grew at a rate of just 5.8% in the January-March quarter, a five-year low.
“The credit guarantee provided by the government will further open up the liquidity line for fundamentally sound NBFCs,” said George Alexander Muthoot, managing director of Muthoot Finance Ltd, one of the biggest non-banking lenders.
Injection - Funds - Budget - Statement - Finance
The injection of funds, which was disclosed in the annual budget statement delivered by new Finance Minister Nirmala Sitharaman, is the latest in a series over the past four years. More than 3 trillion rupees ($43.81 billion) of government money has gone into the banks in that period.
The state-owned banks, which control a majority of banking assets in India, have been weighed down by nearly $150 billion in stressed assets. The bad debts resulted from risky lending they pursued in the previous few years, particularly to infrastructure projects that then failed.
Government - Months - Credit - Guarantees - State
The government also announced that it will for the next six months provide partial credit guarantees to state...
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