Total loans to the sector, at Rs 16,919 crore, were up by 21 per cent in 2008-09 compared to the previous fiscal year.
Measures initiated by the Central government to help micro, small and medium enterprises (MSMEs) to recover from the ongoing downturn and the Reserve Bank of India’s efforts to increase liquidity in the banking system have yielded the desired results for Karnataka’s MSMEs.
Credit flow to the state’s MSME sector during the fourth quarter ended March 2009 grew by 15.02 per cent over the previous quarter ended December 2008. This follows the announcement of revised guidelines by the Central government and RBI, governing the flow of credit to the MSME sector. The banking sector has taken steps to increase the flow of credit, in line with the guidelines.
According to data compiled by Syndicate Bank, the convener of the State Level Bankers’ Committee in Karnataka, total loans to the sector in 2008-09 stood at Rs 16,919.73 crore, up by 21.08 per cent over the previous fiscal. The sector accounted for about 10.89 per cent of total advances in the state during the year.
The data revealed that a total of 484,369 accounts in the manufacturing and service sectors were among the beneficiaries.
In view of the downturn, which hit MSMEs hard, RBI has taken several measures to help the sector, such as restructuring of dues, harmonising prudential norms for restructured accounts, and a second bout of restructuring, among others. Further, banks have taken measures to support the housing, automobile and MSME sectors, in keeping the guidelines issued by the Indian Banks Association (IBA).
Banks have instructed ground-level functionaries to implement these measures for the benefit of these sectors, and particularly for micro and small enterprises. Progress is monitored at various levels to ensure effective implementation of RBI and IBA measures.
Total bank credit to MSMEs in the manufacturing sector grew by 4.96 per cent to Rs 9,676.84 crore during the quarter ended March 2009, compared to the previous quarter ended December 2008. Similarly, in the service sector, bank credit grew by almost 20 per cent to Rs 6,564.58 crore during the quarter ended March 2009.
Among the major banks, Canara Bank led the pack with Rs 3,543.32 crore credit, followed by State Bank of India with Rs 3,004.86 crore, Syndicate Bank with Rs 1,172.44 crore and Vijaya Bank with Rs 1,136.65 crore. State Bank of Mysore and Corporation Bank were fifth and sixth, with Rs 1,043 crore and Rs 735 crore respectively.
Private sector banks led by Karnataka Bank and ING Vysya Bank extended credit of Rs 1,447 crore, while regional rural banks lent around Rs 670 crore during the quarter ended March 2009.
As of March 2009, the outstanding level of credit to micro enterprises was Rs 5,421.29 crore. Advances to small enterprises were Rs 7,353 crore, and those to medium enterprises Rs 4,145.44 crore. Advances to micro and small enterprises comprised 75.50 per cent of the total advances to the MSME sector at Rs 16,919.73 crore.
Under the guarantee scheme of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), banks have covered 10,943 units with an approved amount of Rs 614.53 crore as of March 2009, reflecting increased coverage of 1,211 units over December 2008. The CGTMSE is a flagship scheme of the Ministry of MSMEs.
As part of the economic stimulus package, RBI had advised banks not to demand collateral on new loans of up to Rs 5 lakh for MSMEs (in both the manufacturing and service sectors), as defined under the MSME Act 2006. However, it has been noticed that banks have been demanding collateral security for such loans, industry sources said.
Following complaints by MSMEs, RBI recently pulled up banks in the state and directed them to ensure collateral-free loans to SMEs henceforth.