Small and medium enterprises (SMEs) contribute close to a fifth of India’s GDP and 40% of its trade, employing more people than any other sector apart from agriculture.
This makes them critical growth drivers for the economy. SMEs are therefore playing a significant role in India’s current investment and consumption boom.
Naturally, India’s banking and financial sector, including British and global banks, has geared itself up to serve this important segment of the economy, aiding its development in terms of scale and sophistication. It is estimated that SMEs have the potential to generate close to US$ 4 billion in banking revenues. Hence, both state-owned banks and private Indian and international financial institutions are all investing heavily in order to develop supporting infrastructure, products and services, risk management tools, and relationship management frameworks to serve SMEs.
India has about 166 commercial banks (including 86 regional rural banks) with more than 80,000 offices nationwide. Of these, about 40% are rural branches.
Banks in India emerged largely unscathed from the global banking crisis, and British banks operating in the country are thriving. Current credit growth is 18%, with more than 50% of incremental bank credit to industry going towards infrastructure building. SMEs receive around 13% of bank credit, and credit growth in this segment has exceeded 20% over the last two years.
Trade finance products
Most UK high street banks will handle basic trade finance products (such as letters of credit) for SMEs exporting goods or services to India. British firms with a larger presence in the Indian market will probably choose to use multinational banks like HSBC or Standard Chartered Bank, which both have an extensive branch network in India. Moreover, major British banks operating in India can offer the full range of traditional as well as structured banking products to corporate and institutional clients from the UK.
All other major international banks do business in India, including BNP Paribas, Deutsche Bank, Barclays, RBS, UBS and Lloyds TSB. They offer a variety of banking services to businesses such as cheque deposit/withdrawal facilities, foreign exchange platform, cash management services, online banking, remittances, credit, trade and working capital, treasury and insurance.
Major Indian banks include SBI, ICICI, HDFC and the Bank of Baroda – most of which now have well-established operations in the UK. UK firms should keep these in mind if doing business with local partners, as Indian companies may prefer working with a local bank or be better served by their products.