India hopes for a stronger banking sector

China’s big banks benefit from the smallness of Indian banks.

No Indian bank is among the top 50 in the world. In contrast, rival China has six banks in the top 50, including the world’s largest bank, the International and Commercial Bank of China, Ltd.

Analysts said the lack of scale among Indian banks is because these banks aren’t sufficiently capitalized to support India’s growth. Three quarters of Indian banks are majority owned by the government, and the Indian government has so far shown no signs of privatizing its banks.

Most private sector banks are devoid of the financial strength to expand lending aggressively. India’s banks, therefore, are unable to provide much of the long-term money for much-needed infrastructure projects. This paucity in capital also prevents banks from lending more to small and medium-sized enterprises. This also means that half of India’s population has no access to banks at all.

Most foreign banks face huge constraints on their ability to expand and of the larger banks are scaling back as a result. With western banks reluctant to lend, and many local banks unable to, the biggest beneficiaries are the Chinese banks.

Indian companies placing orders with Chinese manufacturers can get Chinese financing that is far cheaper than that on offered by Indian banks, to the dismay of the Indian government.