Bikky Khosla | 10 Mar, 2015
The RBI has recently released a report on priority sector lending which puts forth a number of recommendations on lending to the micro, small and medium enterprise (MSME) sector. Financing is one of the most lingering and difficult problems facing the sector and in the light of this I think any development in this front is worth keeping track of. In addition, the report contains some suggestions to enhance credit to the export sector - another issue that attracts no less attention from us.
One of the major steps proposed is the extension of the priority sector lending status to medium enterprises in addition to micro and small enterprises. The suggestion sounds reasonable - the suffering is no less significant in case of the medium sized enterprises when it comes to availability of credit. At the same time, the report proposes the introduction of a sub-categorization within the definition of micro enterprise and a separate 7.5% of adjusted net bank credit sub-target for micro enterprises. If implemented, this move will help make sure that the micro enterprises are not crowded out.
The report adds that priority sector lending status should stay with MSME units for up to three years after they grow out of the category of MSMEs. It will encourage MSMEs to not remain small merely to be eligible for PSL status. The proposal is also in alignment with the 2012-13 budget announcement that non-tax benefits may be made available to a MSME unit for three years after it graduates to a higher category. A few years ago I raised this issue on this platform and hope this time the Centre will pay heed to the apex bank recommendations.
On exports lending, the report recommends incremental export credit from a base date to units having turnover of up to Rs. 100 crore, having sanctioned credit limit of up to Rs.25 crore from the banking system to be included in priority sector. I find the proposal grossly inadequate as it ignores the long-standing demand of exporters to include export in priority sector lending. The Padmanabhan Committee clearly suggested for the latter and was far more detailed on measures to boost credit to the export sector.
I invite your valuable suggestions. What further measures do you think can be taken to solve the problem of credit crunch and high interest rates for MSMEs and small exporters?