September 23, 2009 – IR Summary/Yahoo/Reuters -
The World Bank has come to the rescue of India, on Tuesday, it has approved $4.3 billion in loans to help its finance infrastructure building and to shore up the capital of some state banks as the economy recovers from the global financial crisis, a good news for India.
“The logic of these four loans is that they should support India’s economic recovery by enabling enterprises to get access to credit and … enabling investment in infrastructure,” Roberto Zagha, World Bank country director for India, told Reuters.
The loans are part of the World Bank’s $14 billion in crisis-related lending for Asia’s third-largest economy over three years through 2012.
Zagha said while the worst of the crisis was over, there was uncertainty about the pace of the recovery.
He said economic growth in India of between 5.5 percent and 6.5 percent in 2009/10 was realistic, but cautioned that the country’s economic prospects hinged on a broader global recovery.
“If we don’t see a (global) recovery, then India will not be able to grow at the rates it used to grow in the past of around 8 percent,” Zagha told Reuters.
India’s reserve bank cut its main lending rate by 425 basis points (4.25 percentage points) between October and April, and added massive liquidity to markets as the global downturn hit the economy harder than expected.
As part of its response, the World Bank said it would provide $2 billion to India’s banking sector designed to expand the volume of credit available to firms.
A global credit squeeze prompted banks to cut back on lending, but Zagha said tight credit conditions now appeared to be easing in India.
Also, the global crisis put added demands on public sector banks, as lending and deposit-taking by private and foreign banks have slowed.
“This loan will help maintain credit growth levels, support social banking and employment growth, and help strengthen the economic recovery ahead,” the World Bank said.
The Bank also approved $1.2 billion for the India Infrastructure Finance Co Ltd to spur private financing for public-private partnerships in infrastructure, and to stimulate the development of a long-term local currency debt financing market.
In addition, the World Bank approved $1 billion to address India’s acute power shortages by assisting the Powergrid Corp of India, the national electricity company, with its investment program after a freeze in lending from overseas.
The Bank also provided $150 million to Andhra Pradesh state to improve water supply and sanitation services for 2,600 villages across six districts.
(Reporting by Lesley Wroughton; Editing by Leslie Adler, Phil Berlowitz)
(For more news on Reuters Money click http://www.reutersmoney.in)