A STUDY ON CREDIT TO MSME BY FOREIGN BANK IN INDIA
Introduction
Foreign banks are those banks whose branch offices are in India but they are incorporated
outside India, and have their head office in a foreign country. These banks were allowed to set up
their subsidiaries in India from the year 2002. They have to operate their business by following
all the rules and regulations laid down by the RBI - Reserve Bank of India. They have to pay
more attention to the priority sector by giving them a special place in bank lending. These banks
are expected to follow all the banking regulations, just like any other domestic banks. The
foreign banks can operate in India only, if they have a sound financial status. They must have a
minimum of 25 million US dollars in minimum 3 branches. The first branch and the second
branch must have 10 million US dollars each. The third branch should have a minimum of 5
million US dollars. The foreign banks are permitted to open up more branches in the country, if
the performance of the bank is more than satisfactory and it matches the criteria laid adopted by
the domestic banks. There are 43 foreign banks from 21 different countries operating in India.
The business is conducted with the help of more than 331 branches. These branches are located
in more than 15 states which includes union territories. Apart from these banks there are
representative branches operating in India from 12 different countries. Foreign banks have
played an important role in the Indian economy, especially in the priority sectors. Globalization
has compelled the banking sector to reach out to more customers in order to expand their
business. This meant opening banking businesses even in the foreign countries. Many of the
private banks were interested in expanding their business all over the world. They opened up
branches across the globe to serve large number of customers, and also improve service to the
existing customers. This change was a blessing for India. Currently, the foreign banks are
growing tremendously in India.
The Micro, Small and Medium Enterprises (MSME) play very important role in
Economic development of the country. It is acknowledged by the government that, Micro, Small
and Medium Enterprises is an important segment of Indian economy. The MSME Contribute
significant to employment generation, dispersal of industrial activity to rural and backward area,
Micro, Small and Medium enterprises like a channel of Small savings which may idle in rural
area. It contributes 982919 crore of total industrial production and account for
202017 crore
of export from the country. The employment provide by this sector is 695.38 lakh people in
31.75lakh units. This sector has developed from the production of sophisticated and precision
product like electronic control system .Microwave component system, engineering product,
electronics, electronically, chemical, plastics, steel, cement, textiles, paper, matches, plastics,
steel, cement, textile. Paper readymade garments Medical equipments, TV set and the like over
8000 product are manufactured by MSME.
Review of literature
1. S. Krishnamuthy P. Alagarsamy in their article (Bank Credit to SSI Sector) rightly pointed out
that most of MSME sector has not avail timely availability of adequate money and also he
pointed out the MSME also face problems in giving collateral securities for obtaining loan. Most
of MSME sector could not avail the bank loans because of insistence of collateral securities.
2.K.Kamalakannan N.Namasivayam In their article( SIDBI and Small Scale Industries : a Study)
has Rightly indicated that the importance of SIDBI. More over they suggest that the SIDBI
should make efforts to sanction Loans in Balanced manner to different stats of the country. The
SDBI earmark adequate funds which shall be at least equal to five percent of expected
production of the small scale sector and in order to wideness the area of operation the SIDBI
should open more branches in District head Quarters.
3. U. Arabi - Conclude in her article that Given growth and employment potential of Small
Scale unit , there is need to increase the credit availabilities this sector at reasonable cost.
Banking institution must improve their credit assessment capabilities with regard to Small Scale
enterprises. So that they can distinguish adequately between good and bad credit.
4. BL Chandak has rightly pointed out that in his article (SSI Financing: An over view) that is
“the success of the economy especially in industrial sector can be better ensured through a
confident , reliable and efficient financial system. He also conclude that financial weakness
facing large part of the rank and file the business is masked by high visibility of note worthy
performance of a selected band of corporate and few industries . However they cannot
compensate the loss of employment and production in general and SSI Sector spur in retail credit
without commensurate flow of credit and investment in industries may not have large term
sustainability.
5. Manokaran sharma in his article (Financing of SME s –emerging issues and key strategies) he
has Rightly pointed out that Bank and financial institutions provide a range of modalities and
term for loans aimed at improving development performance for loan aimed at improving
development and performance of SSI, and also he pointed out in his article that the
preoccupations with the intrinsic health of Banking system by restrictive credit. Moreover he
pointed out in his article conclusion that “SIDBI has also been granted permission for extending
comprehensive finance and service to Mses covering both fund and non fund based facilities
extended integrated service to MSEs continue in the next age.
Objectives of the study
1. To study total loan offered by foreign bank to Indian MSME
2. To study loan offered to MSME by top ten foreign bank
3. To study the priority sector lading offered by foreign bank
4. To study Export credit offered by foreign bank to MSME.
Scope of study
The percent study is related to Loan or credit offered to Micro , Small and Medium Enterprise
by foreign bank , which consist thirty six bank in India according to 2011 RBI Report . This
study focus on all Micro, Small and Medium Enterprise which located in India
Methodology
The present study is a descriptive research work. This study based on secondary data. The
secondary data collected from various secondary sources such as MSME annual report, RBI
Annul report, and southern economic, Indian journal of marketing etc. simple percentage are
used to Data Description
Outstanding Bank credit to MSME
Table-1
The following table revel year wise foreign bank credit to Indian MSME
( Amount in crore)
Year
Foreign bank
Credit
Annual increase
% of Annual increase
2005
6907
2006
8430
1523
22.050
2007
11637
3207
38.043
2008
15489
3885
25.082
2009
18063
2574
14.250
2010
21080
3017
16.703
2011
21,461
381
1.816
Source: Reserve Bank of India.
---
As per data given in Table 1. It has showed foreign bank credit, annual increase foreign bank
credit, and percentage change in annual increase in foreign bank credit India. The table 1 it has
showed the foreign bank offered Loan to MSME in India. As per the regard the foreign bank
Granted
6907 crore in the year 2005. In the year 2006 the foreign Bank credit Increased
1523 crore than previous year .i.e.
8430 crore. In the year 2007 it increased 38.043 % in
previous year. in the year 2008 it increased
3885 crore more than the year 2007. In an average
the Foreign Bank credit increased 14.250 % in year 2009. In the year 2010 it grant 21080 crore
to MSME. It record 21461 crore in the year 2011. It increased1.816% than previous year, .i.e.
381 crore. While analysing the table it indicate that the foreign Bank credit increased over the
year, but is there is no constant growth in previous year. In an average it grant
in last seven year.
14723.86 crore
The top ten foreign banks which provide credit to MSME
Table-2
The following table revel year wise foreign bank credit to Indian MSME
(
SL
NAME OF
NO
BANK
1
Standard charted
bank
Amount in crore)
2007
2008
2009
2010
2011
TOTAL
3022
3285.40
3565
4163
4476
18511.40
2
Citi Bank
2408
3483.39
3994
4428
4174
18487.39
3
HSBC
1506
3105.59
3461
3430
2994
14496.59
4
ABN Amro Bank
1853
2422.61
2341
--
--
6616.61
5
Barklays bank
11
367.11
1004
2168
2005
5555.11
6
Dutshe Bank
494
587.61
1051
954
1664
4750.61
7
The Rayal bank
--
--
--
1965
2070
4035
8
BNP Paribas
266
454.21
670
935
738
3063.21
9
DBS Bank
267
304.53
422
625
687
2305.53
247
304.16
351
416
509
1827.16
10
Bank
of
Nava
Scotia
Source: RBI Annual report
As per data given in table -2 It has show foreign Bank Credit to Indian MSME. The table
consists five year from the 2007 to 2011. As per the table the Standard charted Bank granted
huge amount of loan to MSME. i.e.
18511.40 Crore in the last five years. In an average the
standard charted Bank offered 3702.2. As per the record the standard charted Bank Grant
3022 crore in the year 2007. In the year 2008 the standard charted Bank grant 8.72 % greater
than previous year i.e.
3285.40 crore. In overall it increased 48.11% over the year i.e.
1455 crore. It is indicate that the credit rate standard charted Bank is increased constantly. In an
average the Citi Bank offered
analysis It offered
3697.48 crore in the last five year, i.e. 2007 to 2011. In overall
18487.39 crore in last five year. The standard charted Bank offer 24.01
crore more than Citi bank. The HSBC Bank offer
year. In an average it offered
144961.39 crore to MSME in the Last five
28992.32 crore. The citi Bank 126474.2 Crore more than Citi
Bank. The ABN Amro Bank it offered
6616.61 crore in first three years i.e. 2007 to 2009. In
an average for last five year it grand only 1323.32 crore. The ABN Amro bank not offers any
loan to MSME in the year 2010 and 2011. Barklays bank Offer
it grant
5555.11 crore. In an average
1111.02 crore. While analysing the table the Barklays Bank offer
11 crore in the
year 2007. Following that it offer 304.16 crore in the year 2008. In the year 2010 it Grant 2168
loan to MSME. It is 197.09th time greater than the year 2007. Dutshe Bank Grant
4750.61
crore in the last five year .i.e. from the year 2007 to 2011 . In overall credit the Dutshe Bank
contribute 2.31. %. In overall credit to MSME. The Rayal Bank grant
7156.61 % less than
the Dutshe Bank. In overall credit it contributes 1.97 % in last five year. BNP Paribas grant
3063.21 crore in last five year. In an average it contributes
an the DBS Bank offered
612.64 crore in last five year. In
461.11 crore in last five year, and also it contribute 1.12 % in
overall credit. Bank of Nava Scotia contribute less than one percentage .i.e.0.890% . in an
average it contribute
365.43 crore in last five year.
Export credit offered by foreign bank to MSME
Basically A financial institution or agency that provides trade financing to domestic companies for their
international activities. Export credit agencies (ECAs) provide financing services such as guarantees,
loans and insurance to these companies in order to promote exports in the domestic country. The
primary objective of ECAs is to remove the risk and uncertainty of payments to exporters
when exporting outside their country. The following table revel the top ten foreign bank which are
provide export credit to Indian MSME.
Table-3
The following table revel year wise foreign bank export credit to Indian MSME
( Amount in crore)
SL
NAME OF Foreign
NO
bank
1
City bank
Standard
2
charted
bank
2007
2008
2009
2010
2011
Total
4426
6732.44
6534
68855
7406
31953.44
3891
4267.84
5439
6927
8097
28621.84
3
HSBCLtd
2780
4595.98
5131
5361
6810
24677.98
4
ABN Amro bank
5058
5917.07
5062
--
--
16037.07
5
Deutche Bank
1114
1616.98
5131
5361
6810
10170.98
--
--
--
4876
3709
8585
The Royal bank of
6
Scotland
7
Bank of nova scotla
877
1461.94
1536
1334
2220
7428.94
8
DBS
209
767.07
660
1131
3103
5870.07
9
Barclays bank
20
437.46
953
1364
1600
4374.46
596
883
784
987
1088
4338
Bank of America
10
national
As per data given in table -3 It has show foreign Bank Credit to Indian Priority sector. The table
consists five year from the 2007 to 2011. As per the table the Citi Bank granted huge amount of
loan to Indian export .i.e.
31953.44 Crore in the last five years. In an average the Citi Bank In
an average the Citi Bank offered
6390.69 Crore. In the year 2008 the standard charted Bank
grant 52.11 % of loan greater than previous year i.e.
67.33% over the year i.e.
2303.44 crore. In overall it increased
2980 crore. It is indicate that the credit rate Citi Bank is increased
constantly. In an average the Standard charted bank offered
year, i.e. 2007 to 2011. In overall analysis It offered
standard charted Bank offer
5724.368 crore in the last five
28621.84 crore in last five year. The
3331.6 crore less than Citi bank. The HSBC Bank offer 24677.98
crore to MSME in the Last five year. In an average it offered
4935.60 crore. The Standard
charted bank granted 3943.86 Crore more than HSBC.The HSBC Bank offer 24677.98 crore to
MSME in the Last five year. In an average it offered 4935.596 crore.. The ABN Amro Bank it
offered
16037.07crore in first three years i.e. 2007 to 2009. In an average for last five year it
grand only 3207.41 crore. The ABN Amro bank not offers any loan to MSME in the year 2010
and 2011. Deutche Bank Offer
10170.98 crore. In an average it grant
While analysing the table the Deutche Bank offer
2034.20 crore.
1114 crore in the year 2007. Following that
it offer 1616.98 crore in the year 2008. In the year 2011 it Grant 6810 loan to MSME. It is 6.11th
time greater than the year 2007.
Total Priority sector advance offered by foreign bank
The Government of India through the instrument of Reserve Bank of India (RBI) mandates certain type of
lending on the Banks operating in India irrespective of their origin. RBI sets targets in terms of percentage
(of total money lent by the Banks) to be lent to certain sectors, which in RBI's perception would not have
had access to organized lending market or could not afford to pay the interest at the commercial rate. This
type of lending is called Priority Sector Lending. Financing of Small Scale Industry, Small business,
Agricultural Activities and Export activities fall under this category. This is also called directed credit in
Indian Banking system
Financing Priority Sector in the economy is not strictly on commercial basis as not only the general
approach is liberal but also the rate of interest charged on such loans is less. Export finance is, in fact,
available at a discount of 20% or more on the normal rate of interest to Indian corporates. Part of the cost
of this concession is borne by RBI by means of refinancing such loans at concessional rate. Indian Banks,
therefore, contribute towards economic development of the country by subsidizing the business activities
undertaken by entrepreneurs in the areas which are consider "priority sector" by RBI.
Table -4
The following table revel year wise priority sector advance to Indian MSME
( Amount in crore)
SL
NAME OF BANK
NO
2007
2008
2009
2010
2011
TOTAL
1
City bank
8786
11770.60
12678
13298
13246
59778.60
2
Standard Charted bank
9055
10044.60
11359
12868
14188
57514.60
3
HSBC Ltd
5880
9346.94
10077
9722
10463
45488.94
4
ABN Amro bank
6121
7645.07
6688
--
--
20454.07
5
Deutsche bank
1632
2240.68
3108
3325
4828
15133.68
6
The royal bank of Scotland
--
--
--
6111
4792
10903
7
Barkles bank
30
1225.12
2555
3477
3043
10330.12
8
Bank of Nova scotla
1225
1934.95
1824
1508
2729
9220.95
9
DBS
476
1072.60
1084
1824
3790
8246.6
10
Bank of America national
943
1178
1119
1317
1518
6075
Source: RBI Annual report
As per data given in table -4 It has Priority sector to Indian MSME. The table consists five year from
the 2007 to 2011. As per the table the Citi Bank granted huge amount of loan to Indian Priority sector.
i.e. 59778.60 Crore in the last five years. As per the record the Citi Bank offered 8786 crore in 2007.
In the next year it increased 33.97 %in the year 2008..i.e.2984.60 crore. Over the year it increased
2984.60 crore to 4460 crore in the year 2011. In an average it Grant 11955.72 crore over the year. The
city bank contribute 18.81 % in total priority sector . Standard Charted bank offered 2264 crore less
than citi Bank in overall year i.e. 57514.60 crore. It contribute 18.12 % in overall priority sector
lending. HSBC Ltd Bank
Grant
45488.94 crore to Priority sector . HSBC Ltd Bank offered
12025.66 crore less than Standard Charted bank . The ABN Amro Bank offered 20454.07 only first
three years i.e. .from 2007 to 209 . In an average of it Granted 4090.814 crore in last five years . It
contributes 6.44% in overall priority sector lending at last five years. Deutsche Bank offered 4230.68
crore greater than The royal bank of Scotland in priority sector Lending. In an average it contribute
3026.736 crore. Barkles bank Grant 30 crore in the year 2007. In the year 2008 it grant more than
1195.12 crore than previous year. I.e. 1225.12 crore. While analysing the table it indicted that loan
Granted by Barkles bank to MSME increased constantly, and also it contribute 3.25 % in overall
industrial credit. In an average the DSB bank offer 16493.2 crore in last five year. It contributes 2.60
% in overall credit. The Bank of America national granted less than 2272 crore than DBS Bank.
Conclusion
The finance is the life blood of business. The adequate finance is need to MSMEs for setting up
an industrial unit, providing infrastructure placing advertisements, marketing of their product. The
Business will run only the timely availability of adequate money at a right time. To raise the adequate
money most of Indian MSME depend on various financial institutions such as Indian Banks as well as
foreign banks. In India foreign Bank play very important role in Indian industry especially in MSME.
There are thirty six Bank exist in India in the year 2010-11. They offered huge amount of loan not only
Indian MSME, but also Export Credit and priority sector. Though it offered huge a amount of loan to
MSME, there is no constant Growth in year wise year credit due to fluctuations in no banks.
Reference
1.
S. Krishnamuthy P.Alagarsamy Southarn economist (ISSN 0038-4046) 5th year Publication Volume
45 Number 1 march 1 2006.
2. K.Kamalakannan N.Namasivayam Southarn economist (ISSN 0038-4046) 5th year
Publication
Volume 45 Number 1 march 1 2006.
3.U. Arabi Journal of Social and Management studies (ISSN 0970-8448)
Volume XXXV NO 3-
October- December 2006
4. BL ChandakVOl.XXV. NO.4 Jannuary –March 2005 (ISSN 0970-8456)Vinimaya
5.Manokaran sharmaFinancing of SMEs – Emerging issues and key strategies. Bank quest- volume 76 No
4 October- December 2005