Ministerial group favours 6% priority lending for micro units

To increase credit flow to the slowdown affected micro-enterprises an inter-ministerial group has favoured reserving 6 per cent of the total priority sector lending of banks to such firms, a top MSME official said today.     

"There was an inter-ministerial group which had agreed that around 6 per cent of priority sector lending should be reserved for micro sector," Micro, Small and Medium Enterprises (MSME) Secretary Dinesh Rai told reporters here.     

At present, banks are required to give at least 40 per cent of their total loan disbursal to the priority sector which includes the micro-institutions in the country. However, there is no specified credit limit for such units as of now.     

The group's decision has to be approved by the RBI and the Finance Ministry. However, "this is yet to be approved by the RBI and the Finance Ministry," he said.     

About 42 million small and medium sized companies are operating in the country and employ about 13 million people. They contribute nearly 40 per cent to the total exports and 45 per cent to the manufacturing output in India.     

The Budget 2009-10 has proposed to facilitate flow of credit at reasonable rates by providing a special fund of Rs 4,000 crore for the MSME sector.     

With credit drying up in the wake of the global financial crisis the sector is complaining about the affordability of loans, given high interest rates.