The Indian government is in talks with foreign lenders to provide credit to millions of small and medium enterprises(SME).
This step is being taken after state owned banks 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.
The push for foreign loans comes on the heels of the Indian government announcement that it plans to borrow about Rs 70,000 crore by issuing overseas sovereign bonds.
Recently,the Reserve Bank of India panel has said that the overall deficit in credit for the MSME sector is estimated at about Rs 20 lakh crore to Rs 25 lakh crore.
However,lending to such firms can be risky as some lack proper financial information such as historical cash flow data which makes it challenging for banks to assess the credit risks.