RBI urges banks to improve MSME lending

Urging the banks to boost lending to small businesses, the Reserve Bank of India today said the MSME segment was a safer bet than large corporations.
The apex also said that it has received seven applications for setting up the Trade Receivables Discounting System (TReDS) and has started the due diligence process.
"Everyone should be equally conscious of the fact that there will always be limitations in lending to the individual... So look any which way, the most potential segment for the credit growth to come, in our condition, is MSME sector," Reserve Bank of India Deputy Governor S S Mundra said today.

He was addressing a seminar on Micro, Small and Medium Enterprises (MSMEs) financing at College of Agricultural Banking here.
Mundra said the gross NPA number for loans to MSME segment might be bigger as compared to loans to large corporates, but cases of restructuring are far too smaller, which results in a lower overall stress.
"If you look at the total percentage of stress, I think the MSME sector is much better than the large corporates," Mundra said.

With fears on asset quality of banks continuing and a concern that the newly introduced "5/25" scheme for refinancing being used to mask the stress, Mundra said the central bank is looking at accounts refinanced by banks under the 5/25 rule.

There is an inherent fear among bankers to provide finance to the MSME sector because of issues relating to collaterals, KYC and recovery, he said, adding that this is also the most important segment which provides strong potential of growth.
Mundra said with the growth which is being envisaged and for banks to be in existence, they cannot ignore the sector.
There is a "very strong business case for the banks to grow their MSME book" if we look at it from the perspective of developing a strong lending book with decent margin, which will help the profitability and viability of a bank.

On TReDS, he said apex bank will soon start operating in the country.
"An important thing which is yet to come into existence within the priority sector guidelines is TReDS... This is a work in progress. We have received seven applications for setting up TReDS. Presently, the due diligence is on," Mundra said.