Banks to open their currency chests

"A revolution is happening in the country. Young men and women are not keen on taking up jobs, instead they are willing to take risks by aiming to become entrepreneurs who will create wealth and give employment. Banks should adapt to the rising Young India," Chidambaram said after releasing the 100,000th credit guarantee approval at a function organised here by CGTMSE.

 

Chidambaram's missive to the banks comes in the backdrop of the tardy response received by the scheme from CGTMSE's member lending institutions (MLIs) comprising public sector banks, private sector banks and regional rural banks. CGTMSE was established in August 2000 by the Union government and Small Industries Development Bank of India (SIDBI) to facilitate collateral-free finance upto Rs 50 lakh to entrepreneurs in the micro and small enterprises (MSE) sector.

CGTMSE, which has a corpus fund of Rs 1,584.76 crore, provides guarantee for 75 per cent of credit facility sanctioned to MSEs by MLIs. While the upfront guarantee fee is one per cent for a loan of upto Rs 5 lakh,  it is 1.5 per cent for Rs 5 lakh - 50 lakh. The number of MSEs benefitted from 2000-01 to 2007-08 is 97,282 and the credit facility extended by MLIs is Rs 2,701.59 crore. The sectors covered include food products, industry related services, textiles, metals, paper and printing, non-metallic products, wood and leather and fur products.

But these glints of progress, according to Chidambaram, have been overshadowed by bank's reluctance to be a part of the risk-taking exercises in the MSE sector, which is witnessing a furious growth and contributes to nearly 40 per cent of the country's exports. Emphasising the need for increased coverage of the credit guarantee scheme,  Chidambaram said: "The numbers shown so far are good, but are not enough. There are 1.3 crore MSEs in the country and in the last seven years we have covered just one lakh MSEs, it is not at all impressive."  

Setting a credit guarantee approval target of one million MSEs in the next three years, he directed the banks to respond adequately. "For every young entrepreneur willing to take risk, there should be a banker on the other side of the table who is also willing to take risk," he said.

But what irked him more was the fact that about 63,000 MSEs having received approvals for credit upto Rs one lakh. Thrust should be given to disbursal of larger loans to MSEs, he said and added that SIDBI would be advised to increase the average size of the loan from Rs one lakh to Rs 5 lakh. This apart, SIDBI will also be advised to reduce upfront guarantee fee from 1.5 per cent to one per cent and the annual service fee from 0.75 per cent to 0.50 per cent for credit facility in the Rs 5 lakh - 50 lakh category, he added.