The Japan Bank for International Cooperation (JBIC) and a handful of commercial banks have inked a US$1bn loan agreement with the State Bank of India, in a bid to bolster support for the Japanese automotive sector.

JBIC is providing a US$600mn loan as part of the deal, while also agreeing to guarantee the portion co-financed by the private financial institutions, namely SMBC, MUFG, Mizuho, the Shizuoka Bank and the Bank of Yokohama.

The agreement aims to provide a smooth flow of funds to various counterparties in Japanese automotive firms’ supply chains in India, including manufacturers and sellers.

JBIC’s funding is not conditional on investments or procurement of equipment and materials from Japan, however, as it’s an untied loan.

The Indian market is an “important” one for Japanese automobile makers, JBIC says, adding that India was the world’s fifth-largest automobile market in terms of units sold in 2019, and that Japanese companies accounted for the majority of those sales.

Car sales are expected to plunge in India this year, however, with demand dropping in the wake of Covid-19 containment measures.

Consulting firm McKinsey notes in a recent report that a 20% fall in yearly sales of light vehicles is forecast globally.

“The trajectory of automotive sales in India is similar. Sales in April and May 2020 were around 90% lower than the previous year,” McKinsey’s report adds.

The new financing will also assist measures introduced by the Indian government to help small and medium enterprises (SMEs) cope with the fallout from the pandemic, JBIC says.

In May, Prime Minister Narendra Modi unveiled a US$266bn economic stimulus package – worth 10% of the country’s GDP – in an attempt to boost India’s flagging economy.

Despite these attempts, India’s economic outlook has seen a sharp drop this year, with the International Monetary Fund noting in October that the South Asian nation’s GDP will shrink 10.3% in the fiscal year to March 2021.