Banking: Enterprising Asians hit by BCCI fall-out: India's stock market scandal has brought further problems of credibility, writes Paul Gosling

ASIAN entrepreneurs based in Britain are feeling stifled in their attempts to expand or start up in business because, a year on from the collapse of the Bank of Credit & Commerce International, commercial interests linked to the Indian sub- continent are finding themselves still tainted.

The Asian business community is beginning to think the whole sub-continent is being labelled as dishonest in some quarters. Would-be borrowers say they have been asked to provide much more extensive proof of financial viability than is usual.

Paul Nischall, a leading member of Birmingham's Institute of Asian Businesses and owner of Forward Estates, an estate agency in the city, said: 'Many Asians are having difficulty in getting loans from the four main clearing banks following the collapse of BCCI.'

But it is not just the clearing banks or the BCCI aftermath that are causing the problem. The Indian government is also understood to be placing considerable pressure on its banks operating in Britain to tighten administrative procedures.

This action comes in the wake of a share purchase scandal centred on the largely domestic Reserve Bank of India and a series of loans in India and Britain that have turned bad or doubtful.

Although the State Bank of India, the Bank of India and the Bank of Baroda all operate independently in Britain, competing for essentially the same market, they are owned by the Indian government.

There are plans to integrate the overseas operations, but apparently these have not made much progress.

Many Indian entrepreneurs in Britain complain that the merger plans have made it increasingly difficult to borrow money from these banks. A spokesman for the Indian High Commission, while acknowledging that it had received complaints about the lending policy of the government-owned banks, denied that this was due to either the merger plans or new government policy. 'Many of the Indians (in Britain) would like to see Indian banks here expand,' he said. 'There have been some bad loans. Where big banks can act as a buffer for the occasional bad debt, a smaller bank can't. They have to make fewer loans.'

At home, the Indian banks have come up against severe problems. First, the Bank of India has been refunding all BCCI depositors on behalf of the Indian government - the only government to adopt such a policy. The fear is that if the nationalised banks are not brought under tighter administrative control, further pay-outs by the government could be required.

The Indian banks are firmly controlled by the government, whose intervention in banking policy has forced the banks to invest in low-interest government securities.

At the same time, 40 per cent of 'commercial' loans are issued at controlled interest rates to small farmers and other sectors of the economy favoured by the government. These are seen as vulnerable areas where loans could turn bad.

In addition, antiquated manual bookkeeping systems in India have been shown to play a part in allowing a multi-million- pound fraud to occur.

The nationalised banks and branches of overseas banks in India inadvertently lent huge amounts to finance share purchases which subsequently fell in value. Fraud charges are now being brought.

The Indian High Commissioner's spokesman said that his government had taken positive steps to improve its monitoring system in the light of the stock market scandal.

The State Bank of India's chief manager in Britain, Harkishandas Madanlalji Sharda, pointed out that the role of the bank was specifically to make loans to encourage trade between India and Britain.

'We are in short-term financing, opening up trade. We are not in the business of lending large amounts of money based on property,' Dr Sharda said. 'Wherever possible, we have been sanctioning loans.'

(Photograph omitted)