India's government is in talks with foreign lenders to provide as much as $...
NEW DELHI - India’s government is in talks with foreign lenders to provide as much as $14.5 billion in credit to millions of its small firms, two officials said, in a sign the country’s banking system may not be robust enough to do the job on its own.
KfW’s India office confirmed the discussions, though the main focus was on credit lines to support small businesses’ solar power generation. The talks were at an early stage, KfW said.The official said the government plans to source up to 1 trillion Indian rupees of loans from foreign institutions because Indian banks were not in a position to provide enough capital for the small business sector, which is seen as critical to job creation.
India’s micro, small and medium enterprise ministry is discussing the proposal to pull in foreign banks with the country’s ministry of finance, which will make a final call, the second official said. Gross domestic product growth fell to a five-year low of 5.8% in the January-March quarter, well below the 8%-plus rates that the government is targeting.
This has led to a severe credit squeeze for smaller firms. They pay up to 17% annual interest on loans from banks, while the shadow banks, which are also known as non-banking financial companies can charge as much as 20%.
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