The RBI directive comes on the heels of finance minister Yashwant Sinha emphasising the importance of the SSI sector in the country's economy and the need to extend timely and adequate credit to this sector in the Union budget 1998-99.

"The RBI step is likely to give a tremendous boost to the SSI sector," a public sector bank chairman said. "In case there are still overdues towards SSI suppliers, banks should not hesitate to take it as a negative factor while fixing the rate of interest on the borrowings of corporates," the RBI directive, issued on July 8, pointed out.

The Reserve Bank had, in October 1997,advised banks to ensure that their corporate borrowers finance their domestic credit purchases from SSI units at least to the extent of 25 per cent by way of bills drawn on and accepted by them. The RBI has now said that this instruction has to be meticulously followed.

"Furthermore, banks should also ascertain periodically from their large and medium industrial borrowers, the extent of their duws to the SSI suppliers and the action proposed to be taken by them to clear off the overdues, if any," the directive states. Early last year, the Reserve Bank had in the interest of developing "bill" culture in the system advised banks to ascertain that 25 per cent of the corporate borrowers' inland purchase should be through bills drawn on them by the SSI sellers. However, the scheme failed to take off as corporates were not keen on bill finance.

Thereafter, SSI units supplying goods to the corporates have been complaining that their dues are not promptly settled by the corporates and, consequently, theirmanufacturing activity comes to a standstill at times.