Bankers for cut in policy rates to ease credit flow to SMEs

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SME Times News Bureau | 13 Apr, 2012
Leading bankers Thursday hoped the Reserve Bank of India (RBI) will lower interest rates in its forthcoming monetary policy review to help ease credit flow to micro, small and medium enterprises (MSMEs) as high cost of funds in the past two years has dented their competitiveness.

High inflation and tapering of demand in interest-sensitive sectors amid gloomy global macro-economic conditions are not conducive for raising low-cost funds, said M. Narendra, chairman and managing director of Indian Overseas Bank while addressing a workshop organised by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

"Liquidity in the market has been tight in spite of cash reserve ratio being cut from 5.5 to 4.75 percent on March 10. While the MSME sector continues to struggle for bank credit, repo rates should be reduced further to bring down cost of borrowing, encourage investments and boost growth," he pointed out.

Narendra said the economy needs to kick start the investment cycle. Bankers, at the same time, should reach out to rural areas to ensure that savings go beyond gold and real estate in formal financial instruments.

A.K. Gupta, executive director of Canara Bank, said the government should provide two to three percent interest subvention for MSMEs for at least three years as they contribute 45 percent to industrial production and 40 percent to exports.

It is one of the most crucial sectors of India economy, employing 60 million workers and producing more than 6,000 quality products. "MSMEs are a major source of entrepreneurial skills and innovation. Their contribution of 17 percent towards GDP last year is expected to increase to 22 percent in 2012."

R.C. Khurana, general manager at the Bank of India, said there are 30 million MSME units in India and 12 million people are expected to join the workforce by 2015. He said banks should encourage cluster-based lending approach and extend the credit period beyond seven years.

ASSOCHAM president Rajkumar Dhoot said multiple regulating agencies lead to harassment and inspection with greater impact on operations of MSMEs than on larger units. "If the country has to achieve double digit growth, then it is important to extend them the much-needed infrastructure and finance."

Banks need to promote non-traditional proposals and enable MSMEs become globally competitive in terms of product quality, marketing stragegy and product positioning, said Dhoot who is also member of Parliament.

P.K. Jain, chairman of ASSOCHAM national council for MSMEs, said the Rs 10 crore cap for bank credit MSMEs should be raised so that they can deploy the latest technologies and become a part of the global supply chain.

ASSOCHAM secretary general D.S. Rawat said the chamber has signed a memorandum of understanding with the United Nations Industrial Development Organisation (UNIDO) to establish clusters of small and medium enterprises in two districts of various states.

He said the government should increase procurement of its required goods and services from the MSME sector from 20 to 30 percent and make the scheme operational soon.