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By Aftab Ahmed and Devjyot Ghoshal
NEWDELHI (Reuters) – The Indian government is in talks with foreign lenders to grant up to $ 14.5 billion in credit to millions of small businesses, said two officials, saying the banking system the country might not be strong enough to do the job alone.
The government is in talks with many foreign lenders, including the German development bank KfW Group [KFW.UL], the World Bank and some Canadian institutions to extend lines of credit to small businesses, told the agency one of the officials who did not want to be identified.
The KfW India office confirmed the discussions, although the focus was mainly on credit lines to support solar power generation by small businesses. Discussions were at an early stage, said KfW.
A spokesman for the World Bank in India said Saturday that talks with the government were in their infancy, adding that "new rounds of consultations will help us define the outlines of this collaboration."
According to the official, the government plans to mobilize up to Rs. 1 trillion in loans from foreign institutions, as Indian banks are unable to provide sufficient capital for the small business sector. companies, which is considered essential to the creation of jobs.
"We are exploring, we are discussing with various funding agencies if something can be done (for small and medium sized businesses)," said the second manager.
Officials did not provide full details of their discussions with the banks, or identify all the people they are talking to, but said the talks were at an early stage.
Indian micro, small and medium-sized enterprises (MSMEs) The ministry is currently discussing the proposal to use foreign banks with the country's finance ministry, which will make a final appeal, said the second official.
The demand for foreign loans follows the announcement by the Indian government earlier this month of its intention to borrow about Rs. 700 billion by issuing sovereign bonds from abroad. sea.
The 63 million Indian companies in the micro, small and medium enterprises sector are responsible for more than a quarter of the country's manufacturing output and services and need to be revitalized so that the government of Prime Minister Narendra Modi can revive the economy.
Gross domestic product growth fell to its lowest level in five years, at 5.8% for the January-March quarter, well below the government's target of 8% or more.
But the availability of credit for small and medium-sized enterprises, which also account for about 45 percent of India's total exports, has deteriorated due to the liquidity crisis in the country's shadow banking sector, which forces large lenders to remain solvent.
The state-owned banks, which dominate the sector, have not been able to increase their loans, because they encumber more than 145 billion dollars in bad loans.
This has resulted in a significant credit crunch for small businesses. They pay up to 17% interest per year on bank loans, while parallel banks, also known as non-bank financial corporations (NBFCs) can charge up to 20%.
Last month, a study by a group of experts from the Reserve Bank of India indicated that the overall credit deficit of MSMEs The sector is estimated at between 20,000 and 25,000 billion rupees.
However, the granting of loans to such companies may present risks because some information missing, such as historical cash flow data, prevent banks from badessing credit risks.
To mitigate these risks for foreign banks, the loans would benefit from sovereign guarantees and would be channeled through Indian government agencies such as the Small Industries Development Bank of India, the first official said.
(Additional report by Hans Seidenstuecker in Frankfurt, edited by Martin Howell, Kim Coghill and Clare Fallon)
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