Mumbai, Dec 15: The plans of the World Bank to fund $14 billion to India would be biggest ever by the global lender to Asia's third-largest economy. The funds released will help recaptilise state-run banks facing liquidity strains and target the country's poorest regions, said Rachid Benmessaoud, the Bank's acting country director to India in an interview with Reuters.
He said some $3 billion of the loan will focus on areas most affected by the global financial crisis, including state-owned and housing banks, small- and medium-sized enterprises and infrastructure.
"The capital market is drying up in India and we have seen that a number of commercial state banks are not able to access long-term financing," Benmessaoud told Reuters on Friday.
"Because of the financial distress, certain companies will not be able to repay these banks so their non-performing assets are likely to increase."
He said the World Bank would evaluate the needs of the 27 state-run banks over the next month.
The $14 billion injection over three years comes as India's economy, which was expected to avoid the worst of the global financial crisis, is rapidly losing steam, with industries such as automobiles, real estate and exports reeling as the world's major economies tip into recession and credit remains tight.
Factory output in India fell for the first time in more than 13 years in October, the latest evidence of a rapid economic slowdown.
In many emerging market economies, the issue is that global markets have malfunctioned so severely that they cannot quickly access the capital they need, as banks hoard money and refuse to lend to each other.
In an attempt to ease the cash crunch in the system, the Reserve Bank of India has cut banks' cash reserve requirements by 350 basis points since August and lowered its key lending rate.