How to make banks lend? Perhaps the Reserve Bank of India (RBI) needs an updated handbook of instructions with this title. The country’s lenders have turned risk-averse over the past four years, ever since the central bank forced them to see delayed loan repayments in a new light.
Covid-19 has only heightened their fears. But the virus outbreak and the lockdown have meant that businesses need handholding far more now than they needed before.
Friday’s measures by RBI just add to the nudges to banks to shed some of their apprehensions and lend. Will it work? After Friday, banks can borrow another ₹50,000 crore from RBI on the promise that they would invest 50% of this in the debt of midsized and small non-banking financial companies (NBFCs),