The Refinance package is due to there are indication that the global slowdown is deepening with larger than originally expected impact on the domestic economy.
Here is from FT.com:
India’s central bank took emergency measures at the weekend to avert a growing liquidity crunch affecting the country’s estimated $43.7bn of outstanding trade finance.
Blocked trade credit is threatening to bring productive sectors of the economy to a standstill, particularly small and medium-sized businesses that are unable to fall back on large balance sheets.
Citi has singled out India’s $43.7bn (€34.7bn, £30bn) of trade credit as a particular “problem area”. The Reserve Bank of India is also increasingly concerned about the country’s outstanding short-term corporate sector foreign debt of $82bn.
The RBI on Saturday night more than doubled the funds it makes available for banks to refinance export credit at favourable interest rates to Rs220bn ($4.5bn, €3.8bn, £3bn).
It also extended the export credit repayment window for exporters to nine months from six months.
“There are indications that the global slowdown is deepening with a larger than originally expected impact on the domestic economy,” the RBI said.
The move came as the Asian Development Bank on Sunday appealed to Asian banks to unfreeze credit to customers, saying financial institutions had overreacted to the effects of the global financial crisis in the region
“Things are bad. Things are going to get worse. But there’s no need to hold a wake,” Rajat Nag, the ADB’s managing director-general, told the World Economic Forum’s India meeting on Sunday.
“It’s very tempting when times are bad to pull down the hatches and close yourself in. That kind of thing you can’t do.”
The RBI’s emergency steps are the latest in a series of interest rate cuts and other moves to ease India’s increasing liquidity crunch, as the global crisis takes hold in one of the world’s fastest-growing economies.
Business leaders said on Sunday that more action was needed. K. V. Kamath, chief executive of ICICI Bank, India’s largest private bank, said interest rates should come down by another 200 to 300 basis points to relieve strains in the banking system.
“Everything has combined to a point where fear has overcome business to a point greater than it should be,” he said.
Indian companies say the unwillingness of commercial banks to lend has choked liquidity at every level of the system, from consumer to trade credit.
“When we get credit everything will be all right – the manufacturer should get it, the component manufacturer, the vehicle manufacturer, my dealers and the consumer,” said Rahul Bajaj, chairman of Bajaj Auto, one of India’s biggest motorcycle companies.
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- India acts to avert liquidity crunch, November 16 2008 22:06
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