SMEs may get help from banks

Struggling small and medium enterprises (SME) and exporters may get some relief with the Indian Banks’ Association (IBA) today indicating that lenders may consider waiving the penalty on delayed loan repayment and lowering margin requirements to enhance credit limits for small units and exporters.

These two were among several key demands raised at a meeting between IBA and representatives from SMEs and export organisations .

On the margin required for accessing credit, SMEs want banks to raise the amount they lend against inventory. So, instead of taking loans worth Rs 75 crore against stocks of Rs 100 crore, SMEs want banks to lend, say, Rs 85 crore against the inventory.

The demand for waiver of penalty for delayed repayment has arisen because SME customers have also postponed or delayed payment for the goods or services sold. SMEs argued that there is a contraction in demand from many foreign countries. Inventory is also piling up as demand in the local market has been hit due to the economic slowdown.

IBA Chairman TS Narayanasami, who is also chairman & managing director of Bank of India, told reporters after the meeting that banks had the discretion to consider these two demands since they do not require regulatory change.

SME representatives also sought interest subsidy, relaxation in classification norms for non-performing asset (NPAs or sticky loans), a moratorium on loan payment for one year and rescheduling overdue loans.

IBA will have to approach the government and the Reserve Bank of India for these suggestions since they relate to fiscal matters or regulatory norms, Narayanasami said.

Industrial units located in states with acute power shortage have also sought term loans with “soft conditions” to buy generators.

The interest subsidy proposed by SMEs was on the lines of the one for farm loans for which the government provides a 3 per cent subventions for loans up to Rs 3 lakh. The farm loan is made available by banks at 7 per cent and the government bears a part of the difference between the cost of funds and the lending rate.

The SME credit portfolio is estimated at Rs 1,50,000 crore and a 2 per cent subsidy will entail a budgetary allocation of Rs 3,000 crore a year. For the current financial year, the Centre has budgeted for Rs 1,600 crore interest subvention on farm loans.

In case of the NPA classification norms, SMEs have suggested that the loan should be treated as a non-performing only if the payment is overdue for 180 days instead of the current 90-day norm.

Yesterday, Union small scale sector secretary Dinesh Rai indicated that RBI will announce measures to help SMEs.