'Tighten noose around banks over MSME credit flow'

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SME Times News Bureau | 21 Aug, 2012
Blaming banks of shying away from lending to small and medium units, exporters' body FIEO has recently demanded the Centre to set up a committee to monitor whether these firms are benefiting from the RBI directives issued periodically urging banks to ensure ample credit to the sector.

"There is no flow. Banks are shying away from MSMEs, which cater to both domestic and international markets. For exports, foreign currency is not available at all," said FIEO president M Rafeeque Ahmed in a letter to Chidambaram.

"There is an apprehension that since banks now operate in an environment of de-regulation, advisories such as the RBI's often succumb to the pressures of profit and bottom lines. Hence in order to obviate such a situation, a monitoring committee must be put in place by the ministry of finance, to enable all MSMEs to benefit from the RBI's directives," added Ahmed.

Time and again, the Reserve Bank of India has directed banks to extend loans to MSMEs. The central bank has already advised banks to achieve a 20 percent year-on-year growth in credit to the sector, but yet only five to seven per cent of MSMEs get institutional funding.

A recent study by the International Finance Corporation and the Japanese government, titled MSME Finance Market in India, stated that the debt gap is Rs 2.3 trillion ($46 billion) for micro enterprises, Rs 0.5 trillion ($10 billion) for small enterprises, and Rs 0.1 trillion ($2 billion) for medium enterprises.

The FIEO chief hailed the finance ministry's directive that foreign currency loans must be provided to the MSME export sector, but he added that it is also required that large banks would provide funds at a mark-up of not more than 10 basis points, thus reducing the interest rate on Packing Credit in Foreign Currency (PCFC).