Credit and finance for MSMEs: A recent survey on international trade in banking services for the financial year 2021-22 released by the Reserve Bank of India (RBI), which focuses on cross-border fund-based banking services, noted Rs 737 crore income for banks through commission or fee charged for trade finance related services (TFR).
The trade finance-related services by Indian banks’ branches operating abroad included fees for establishing or originating, maintaining or arranging standby letters of credit, letter of indemnity, lines of credit, fees for factoring services, bankers’ acceptance, issuing financial guaranty, commitment fees, handling charges for trade bills, and arranging trade finance like buyers’ and suppliers’ credit, RBI said.
Buyers’ credit is credit to an importer from overseas banks for the import of goods. The overseas banks usually lend to the buyer (importer) based on a bank guarantee or standby letter of credit issued by the importer’s bank. Supplier’s credit on the other hand involves overseas suppliers or banks outside India giving credit to importers at international rates.
In comparison to FY22, the fee income through TFR services during FY21 was Rs 764 crore. Among countries including Bahrain, Hong Kong, Singapore, UAE, and the UK mentioned in the survey, Indian banks’ branches operating in Singapore topped the list with Rs 204 crore income followed by Rs 107 crore income of Indian banks’ branches in Hong Kong, and Rs 80 crore of branches in UAE.
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In contrast, for foreign banks’ branches operating in India, the fee income from TFR services increased from Rs 1,149 crore during FY21 to Rs 1,502 crore in FY22, the survey released on October 12 noted.
In terms of credit extended, Indian banks’ branches operating abroad gave Rs 6,84,808 crore loans in FY21 which increased 13 per cent to Rs 7,74,179 crore in FY22 while credit extended by foreign banks’ branches in India increased 13.5 per cent from Rs 4,15,312 crore in FY21 to Rs 4,71,673 crore in FY22.
In India, the RBI-regulated TReDS platform facilitates invoicing of bills for MSMEs to cater to the working capital-related challenges they face due to the delay in payments by their customers including large enterprises and government departments or public sector units. TReDS had registered a steep rise in the value of invoices financed in FY22 to Rs 34,362 crore from Rs 17,080 crore in FY21. The data was shared by MSME Minister Narayan Rane in a written reply to a question in Rajya Sabha in March this year.