In a bid to address the long-pending grievance of the micro, small and medium enterprise (MSME) sector that it lacks sufficient access to bank credit, the Reserve Bank of India (RBI) plans to join hands with industry associations to prepare a database of units that do not have such access.
Banks should cater to the MSME sector for sustainable growth, said N S Viswanathan, southern regional director of RBI, adding that it is the best medium for achieving financial inclusion. Credit penetration for this segment is only seven per cent, with the overwhelming majority still depending on money lenders.
In Tamil Nadu, a state with a large concentration of MSMEs, the RBI is talking to various MSME associations to find out how many of their members have availed themselves of bank credit. This is the first step, and the next will be to connect bankers and units, Viswanathan said.
He agreed that banks see MSMEs as high-risk borrowers. When an account turns sticky, banks focus only on recovery; instead, they should look at how to revive units, he said.
While welcoming the RBI’s move, the president of the Tirupur Exporters Association (TEA), A Sakthivel, said, “The government keeps saying that a certain portion of bank credit should be kept aside for MSMEs, but there is no monitoring. They should have a mechanism to monitor whether the target is achieved or not, and stringent action should be taken against banks which do not meet targets.”
Tirupur-based units export knitwear worth around Rs 12,500 crore annually and need Rs 1,500-2,000 crore of bank credit to support their businesses, said Sakthivel.
Recently, a senior official of the Federation of Indian Micro & Medium Enterprises (Fisme) was quoted as saying banks are very subjective in lending to MSMEs and do not maintain records of loan applications. However, banks blame MSMEs for not keeping their books clean and for defaulting on loan repayments.
While denying allegations that banks are not meeting targets, the chairman of a public sector bank noted that credit flow to the MSME sector rose by nine per cent to Rs 7.12 lakh crore in 2011-12, from Rs 6.53 lakh crore in 2010-11.
Commenting on banks’ practice of asking for collateral, he said, “At the end of the day, we have to get back what we have disbursed, since it is public money. Besides, most MSMEs do not have proper accounts, or collateral, or even a concrete plan.”
Agriculture and MSMEs used up only a fifth of bank credit, but accounted for 36 per cent of banks’ non-performing loans, according to data from the RBI’s latest Financial Stability Report.
Around 4.8 per cent of MSME loans were non-performing as of March 2012, according to the report. The proportion rose by 1.3 percentage points over the past year.
Despite all this, the government continues with all measures to support the sector, because it recognises that this sector cannot be neglected, said the bank chairman. For instance, the government recently decided to allocate a corpus of Rs 7,000 crore corpus to Sidbi for the refinancing and restructuring of bank credit to SMEs.
The finance ministry is reportedly planning to streamline lending norms for the SME sector and has asked state-owned banks to come out with an uniform loan application form for loans of up to Rs 25 lakh. The government has also asked banks to set up an electronic loan tracking system, which would enable prospective SME borrowers to check the status of their loan applications. This is expected to reduce the discretion available to bank officers in granting loans to SMEs.
