INSUBCONTINENT EXCLUSIVE:
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.The government is in discussions with multiple foreign lenders, including
Germany's state-owned development bank KfW Group, the World Bank and some Canadian institutions to extend lines of credit to small
enterprises, one of the officials, who did not want to be identified, told Reuters.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 World Bank's India spokesperson did not reply to an email seeking comment.The official said
the government plans to source up to Rs 1 lakh crore of loans from foreign institutions because Indian banks were not in a position to
full details of the discussions they are having with banks, or identify all those they are talking to, but said talks are at a very early
stage.The Micro, Small and Medium Enterprise (MSME) 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.The push for foreign loans comes on the heels of the
government's announcement earlier this month that it plans to borrow about Rs 70,000 crore by issuing overseas sovereign bonds.India's
63 million firms in the micro, small and medium firm sector are responsible for more than a quarter of the country's manufacturing and
services output, and must be re-energised for Prime Minister Narendra Modi's government to kick-start the economy.Gross domestic product
growth fell to a five-year low of 5.8 per cent in the January-March quarter, well below the 8 per cent-plus rates that the government is
targeting.But credit availability for small and medium firms, which also account for about 45 per cent of the country's total exports, has
worsened due to a liquidity crisis in the country's shadow banking industry that has seen big lenders struggling to remain
solvent.State-owned banks, which dominate the sector, have not been able to drive increased lending because they are burdened with more than
$145 billion in bad loans.This has led to a severe credit squeeze for smaller firms
They pay up to 17 per cent annual interest on loans from banks, while the shadow banks, which are also known as non-banking financial
companies (NBFCS) can charge as much as 20 per cent.Last month, a study by a Reserve Bank of India panel said the overall deficit in credit
for the MSME sector is estimated at about Rs 20 lakh crore to 25 lakh crore.But lending to such firms can be risky as some lack proper
financial information, such as historical cash flow data, which makes challenging for banks to assess the credit risks.To mitigate such
risks for foreign banks, the loans would be given sovereign guarantees and be routed through government agencies such as the Small
Industries Development Bank of India, the first official said.Get Breaking news, live coverage, and Latest News from India and around the
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