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RBI Deputy Governor Highlights Measures to Strengthen MSME Lending: FICCI

Capital Market 

Mr. N S Vishwanathan, Deputy Governor of Reserve Bank of India, inaugurated FIBAC 2018, India's largest conference on banking, organised jointly by Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Banks' Association (IBA), here today. The theme of the two-day conference is Financial Services to SMEs in an Increasingly Digital Ecosystem'.

In his inaugural address, Mr. Vishwanathan highlighted the importance of the MSME sector. "The MSME sector plays an important role in any economy, and India is no exception," he said. Recognising their role as providers of employment and generators of export, the Government and RBI have taken affirmative measures to strengthen the sector. And in order to ensure that the larger entities within the sector do not crowd out the smaller ones, the banks have been given specific targets to address the latter group.

Among the measures highlighted by the Deputy Governor was the mandate to banks to provide a fixed percentage of their lending to this sector. RBI has introduced the Trade Receivables electronic Discount System (TReDS) to address delays in recovery. Steps have been taken to strengthen the credit bureaus.

And it is work in progress to formulate legal amendments to address the ever-expanding data pool and how it can be used by the financial sector players for credit assessment.

"But problems in MSME are not just financial alone; there are several other areas that they need support from," he said. He pointed out that credit to the sector has grown. "Bank advances to the MSME sector have clocked an impressive year-on-year growth of 8.9% during the first quarter of '18-'19. This indicates that the credit flow to the sector has turned robust." Financial inclusion through NBFCs has been enabled by fintechs and artificial intelligence.

Mr. Vishwanathan also highlighted some regulations pertaining to capital requirements for systematically large financial institutions that are too big to fail. Their financial resilience is being strengthened with higher and better quality capital; and there is a move towards reduction in model risk that had created the problem of under-capitalisation, towards standardised approaches. RBI has also put in place a framework to contain the probability of failure of large banks. He informed that this is an ongoing process and will keep undergoing improvements. He also touched upon the need for additional capital for the domestic systematically important banks in India.

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First Published: Tue, August 21 2018. 14:39 IST