MUMBAI / NEW DELHI – On Friday, the Indian government announced a new capital investment of about $ 10 billion in debt owed state banks and credit guarantees to support shadow lenders to increase lending and revive the economy. 19659002] India's economy has fallen over the past year, partly because many small and medium-sized businesses and consumers have found it difficult to borrow from banks or from shadow lenders, officially known as non-bank financial corporations.
This is because some of the banks and NBFCs are burdened with bad debts, which has affected their ability to borrow.
Economists, credit rating agencies and some of the lenders welcomed the moves and said they were important if India was reforming the banking sector and raising the economy to prices above 8% marked by Prime Minister Narendra Modi's government.
The economy grew by only 5.8% in the January-March quarter, a five-year low. 1
Injection of funds described in The annual budget statement provided by New Finance Minister Nirmala Sitharaman is the latest in a series over the past four years, with more than three trillion rupees ($ 43.81 billion) of state money entering the banks during that period.
The banks, which control the majority of banking connections in India, are weighted down by nearly $ 150 billion in stressed assets, the weak debt being due to the risky lending they pursued over the previous years, especially to infrastructure projects that then failed.
The government also announced that in The next six months will provide a partial credit guarantee to state banks that buy highly rated aggregate assets from financial defense Nike NBFCs
To make it easier for banks, the Reserve Bank of India (RBI) announced on Friday that it would provide additional liquidity to banks for asset acquisition or for lending to NBFC. The authorities will also facilitate restrictions on foreign institutional investors who have invested in NBFC's debt securities.
Furthermore, the government said that NBFCs in the future no longer have to put aside additional capital when selling their debt in public markets.
"NBFCs play an extremely important role in maintaining consumption demand as well as capital formation in the small and medium-sized industrial segment," Sitharaman said.
India has almost 10,000 registered NBFC loans to millions of households that may not be able to borrow directly from a commercial bank.
Although they can provide loans more easily, they generally take higher interest rates than banks, often as high as 21-24% a year. Ironically, the NBFCs have previously borrowed much of their money from banks, as well as securities and through debt sales.
But according to the standards of a large NBFC, Infrastructure Leasing & Financial Services (IL & FS), last year the property quality in the sector has come under greater scrutiny. As a result, NBFC's loan expenses have increased so many banks and securities stopped lending to them.
Sitharaman also announced that RBI will have much more regulatory authority over NBFCs in bills drafted.  NBFCs are currently regulated by host of regulators, including the market regulator – the Securities and Exchange Board of India (SEBI) and the Home Rule Government.
"Structurally, it's a positive step as it will help improve oversight," said Karthik Srinivasan, head of financial sector reviews on the credit rating firm ICRA. – Reuters