Mundra makes a 'strong' case for lending to MSMEs

Reserve Bank of India (RBI) Deputy Governor S S Mundra said on Tuesday lenders should focus on small loans to small enterprises in the absence of big-ticket loans.

“If you look at the credit scenario in the banking industry in the past few years, the slowing down of credit growth that the banking industry has faced in the large industrial sector, and if you put all that together, there is a very strong case for banks to look at the MSME (micro, small and medium enterprises) sector,” Mundra said at the launch of certified credit counsellors programme by Small Industries Bank of India (SIDBI) for the MSME sector. 

"There are strong arguments and logical reasons for the banking industry to look at the MSME sector as a potential business area because, in the large industrial credit, there are certain problems,” he said, adding that banks cannot just depend on retail loans. 

Consumer loans can be meaningful if people taking such loans are engaged in productive activity and are able to generate income to repay. “Consumer loans by nature don't generate any cash flows, or surplus.”

There are about 48 million MSME entities in the country. They provide employment to 110 million people and contribute nearly 45 per cent of the manufacturing output and around 40 per cent of the nation’s exports. However, globally, only about 30 per cent of MSMEs survive beyond 10 years. Most fail because of constrains in getting finance, the deputy governor added.