Do Foreign Banks in India Indulge in 'Cream Skimming'?

Foreign banks in developing countries are often found to indulge in "cream skimming," a lending strategy that targets only wealthy segments of the credit market and excludes small and marginal borrowers from the general pool of borrowers. This paper attempts to investigate whether lending patterns of foreign banks in urban regions of Indian states are indicative of such practices. Using credit data on urban regions of 21 states of India for 1999-2011, this paper finds empirical evidence of cream skimming by foreign banks in India.

We thank the participants of the Workshop on Development Strategies: Country Studies and International Comparisons, organised by HTW, Berlin and East China Normal University in Shanghai, November 2012 and IGC–ISI Summer School (Delhi), July 2014, for helpful comments on earlier drafts of this paper. We also thank two anonymous reviewers for their insightful comments on previous versions of this paper. All errors are ours.