India May Tell Foreign Banks to Lend More to Small Companies

Foreign banks operating in India should be required to offer as much as 40 percent of their loans to small companies and exporters, a committee set up by the banking regulator recommended today.

The overseas banks must provide at least 32 percent of the loans to so-called priority sectors, including agriculture, the committee said in a statement. Their Indian competitors already face a 40 percent requirement.

The proposal is an attempt to ensure credit to sectors that generate jobs, according to the report by a committee headed by M.V. Nair, chairman of Union Bank of India. Thirty-seven overseas banks led by Citigroup Inc. and HSBC Holdings Plc had a combined market share of 5.1 percent of total lending, data published by the Reserve Bank of India show.

“This move will put pressure on the profitability and asset quality of foreign banks operating in India,” said Nitin Kumar, banking analyst at Quant Broking Pvt., a Mumbai-based brokerage. “It is not a very profitable business and the foreign banks will struggle to meet the target.”

To contact the reporter on this story: Anto Antony in New Delhi at aantony1@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net