Banks Flouting Nayak Panel Recommendations, Says Ficci

The Federation of Indian Chambers of Commerce & Industry (Ficci) has submitted a memorandum to the Reserve Bank of India committee on credit to small-scale industries saying that the guidelines based on the Nayak Committee recommendations have not been adhered to by many banks.

As a result, says Ficci, the performing small units do not get requisite working capital from the banking system.

The Nayak Committee was set up to work out the framework for extending credit to the SSI sector.

According to the guidelines, bank credit for borrowers with fund-based limit up to Rs 2 crore from the banking system is to be computed on the basis of a minimum of 20 per cent of their projected turnover, with 5 per cent towards the margin being contributed by the promoters.

 

According to Ficci, this non-adherence to the credit limit has forced the SSIs to take recourse to macro borrowings at a prohibitive rate of interest, rendering their cost structure unviable.Analysing a time series between 1993-94 and 1996-97, Ficci points out that the SSI growth rose from 7.1 per cent in 1993-94 to 11.3 per cent in 1996-97. Industrial growth during these years was 6 per cent and 6.5 per cent, respectively, showing a large spread between SSI growth and industrial growth.

However, bank credit to the SSI sector during the period dropped from 12.7 per cent in 1993-94 and 13 per cent in 1994-95 to 11.3 per cent in 1995-96. This was unreasonable and unwarranted, says Ficci.

In a separate statement issued yesterday, Ficci has suggested measures including the setting up of a technology mission, separate fund for research and development, proliferation of a number of venture capital companies to financially support SSIs and promotion of factoring and bill discounting schemes.

The chamber maintains that the SSI sector, with a share of 40 per cent in manufacturing output and direct exports and almost 50 per cent in organised manufacturing employment, sector deserves suitable measures for its development.

To tackle the marketing problems faced by the sector, Ficci says the government should promote private sector marketing societies or consortia. The government should also support SSIs by way of capital investment subsidy and equity participation.