RBI decides to include medium enterprises now under priority sector

The Reserve Bank of India (RBI) on Tuesday decided to consider incremental bank loans to medium manufacturing enterprises (as defined in the Micro, Small and Medium Enterprises Development Act, 2006), extended after November 13, as priority sector advances.

“The incremental bank loans to medium service enterprises extended after November 13, up to the credit limit of Rs 10 crore, would qualify as priority sector advances,” RBI said. In line with this, incremental loans to micro and small service enterprises up to a credit limit of Rs 10 crore, as against the current ceiling of Rs 5 crore, would also be treated as priority sector advances, RBI added.

The central bank said this dispensation would remain in force up to March 31.

According to RBI’s recent report Trend and Progress of Banking in India 2012-13, defaults among both private and public sector banks in meeting priority sector lending targets remained a concern, with implications on financial inclusion.

Revati Kasture, head of research, CARE Ratings, said the economic slowdown had hit many viable medium-sized units across sectors, as payments from large companies weren’t being recorded on time. They had limited bargaining power and couldn’t afford to pile up dues for long, she said. With lending to medium-sized units set to be treated as priority sector lending, banks would look to give loans to viable units, she said, adding meeting priority sector lending targets was vital.

While banks may become more amenable to lending to medium-sized units, they would be careful about whom they lend to, and it is expected the screening standards will be very stringent, given the rising slippages.

According to RBI’s recent report, priority sector credit had risen in 2012-13, against a drop in overall growth. However, growth in priority sector credit was lower than the growth in overall credit. In 2012-13, credit to priority sectors by public and private sector banks stood at 36.3 per cent and 37.5 per cent (of adjusted net bank credit/credit equivalent of off-balance sheet exposure, whichever is higher), respectively, against the overall target of 40 per cent.

For micro and small industries, dues stood at Rs 2.84 lakh crore, as of March 2013, growth of 20.3 per cent compared to the previous year.

A WIDER REACH

* Payments to viable medium-sized units across sectors are delayed

* This limits their bargaining power; these units can’t pile up dues for long

* It is expected screening for loans to medium-sized units will be stringent

* The dispensation announced on Tuesday will be effective till March 31