Sensex, Nifty decline as RBI loan relief hits banks

By Reuters

  • 22 May 2020
Credit: Reuters

Indian shares slid on Friday, as banks fell after the central bank decided to cut policy rates and extend a relief period for loan repayments in an effort to contain the economic fallout of the COVID-19 pandemic.

The Reserve Bank of India extended a moratorium on loan repayments by a further three months, as many borrowers are out of jobs due to the weeks-long lockdown that has threatened to push Asia's third-largest economy into recession.

While some analysts saw it as a much-needed relief for the economy, banking stocks slid as investors fretted over the impact of the moratorium on banks' already huge pile of non-performing loans (NPLs).

Analysts said the moratorium could result in banks delaying the recognition of defaults and NPLs, and that investors were disappointed over the lack of any announcements on a one-time restructuring of bank loans.

Steps including a loan restructuring scheme, the possibility of creating a "bad bank" for stressed sectors and infusing more liquidity via bank recapitalization bonds could help support India's lenders, economists at HSBC in Mumbai said in a report.

"The already high NPLs are likely to rise further through this crisis. If banks remain stressed, India's medium-term potential growth is at risk," they said.

The NSE Nifty 50 index settled 0.74% lower at 9,039.25, while the S&P BSE Sensex closed down 0.84% at 30,672.59.

The Nifty banking index fell 2.5%. The top four drags on the Nifty 50 were banks or finance companies. The nation's top mortgage lender HDFC Ltd fell 5.1%.

Meanwhile, renewed U.S.-China tensions cast doubt on a trade deal between the world's two largest economies, dragging stock markets across Asia lower.

In India, the Nifty metals index fell 1.9%. China is one of the world's largest producers and consumers of metals.