China allows SBI to lend to Indian firms in yuan

Government-owned State Bank of India has become the first Indian bank to get permission from the Chinese government to lend in yuan, in a move that is being seen as an attempt to encourage Indian companies to raise their investments in China.

Although the Chinese government took 10 months to grant the permission, State Bank believes it to be a gracious gesture on the part of China since the country normally shies away from permitting foreign banks to do business in local currency.

According to SBI deputy general manager in charge of overseas expansion and planning, Naresh Malhotra, SBI, which has so far been lending to Indian business in China in US dollars, can start lending in the local currency from 15 March 2010.

However, the permission to lend in the Chinese currency is specific to the Shanghai branch of SBI.

SBI officials in China say that it will benefit Indian business as they will be able to borrow about a billion yuan, (approximately $200 million) without the need to source funds from local banks.

SBI has already invested around $45 million in China in order to expand in the region and has a fully operational branch in Shanghai and a representative office in Tianjin, which it plans to upgrade to full fledged bank soon.

The bank is also planning to open a branch in Guangzhou, the export-driven province in China.