LENDING & CREDIT | Staff Reporter, India

Indian shadow banks' recovery face setback as liquidity, debt weaken

As a result, the central bank unveiled additional stimulus measures in October.

Signs of a recovery for India’s troubled shadow banks have stalled as the sector’s health gauges indicate that liquidity and debt have weakened, reports Bloomberg.

Average spreads on the lenders’ AAA rated five-year bonds rose for the first time in four months in September. Of three other gauges tracking shadow bank sector health measured by Bloomberg, two including banking system liquidity and outstanding debt weakened.

These developments are a setback after months of improvement following targeted support from The Reserve Bank of India as they scrambled to cushion the effects of the COVID-19 pandemic.

Also Read: Improvement in sight for India's shadow lenders

A robust shadow banking system is a must for India as the financiers lend to those that banks often won’t, including weaker firms.

On the upside, the central bank has stepped up stimulus measures again with a promise to finance 1 trillion rupees ($13.6 billion) of corporate bond purchases by banks.

Read more from Bloomberg.

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