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

via FT.com / Asia-Pacific / India – India acts to avert liquidity crunch

Advertisements