Banks seem to have become lukewarm to the financial needs of the small-scale sector of late. Small-scale units are plagued by multiple problems in the current economic slowdown?access to finance, lack of demand, non-availability of raw materials, low capacity, inadequate and high cost infrastructure, obsolete technology, falling markets, and failure to meet global standards.
Statistics show that banks have been lethargic in lending to small units though there has been substantial year-on-year growth in gross bank credit in recent times. But the percentage of bank credit to this crucial sector has gone down from 12.60% in 1996-97 to 6.34% in 2006-07. The credit to micro enterprises having an investment up to Rs 5 lakh in plant and machinery, has declined from 23.3% in 2002 to 17.07% in 2005-06. In comparison with gross bank credit,their advances amounting to Rs 59,279 crore show a fall from 3.7% to 2.4%. Similarly only 0.52% of the 1.14 lakh sick units were chosen by banks for nursing back to life by infusing funds.
What is needed now is a sperate, focused policy that will identify small-sector needs, and suggest action plans for sound operation and speedy recovery from a crisis. As with other vulnerable groups like those in agriculture, there is perhaps a need for concessional credit?say at a rate of 7% like farmers get?to tide over these difficult times. Units particularly vulnerable to changes in global market conditions such as leather, textile, gems & jewellery etc?all of which are badly hit by the collapse of their traditional markets in the developed countries? need special packages tailored to suit such problems.
A new policy should not only focus on revival and rehabilitation but also provide a safe exit route for the unviable and loss-making enterprises. So, for example, units with loans worth less than Rs 25 lakh could perhaps, for reasons of pragmatism, be exempt from the law that allow banks to take possession of collateral security assets, and put them for public auction. That may be simpler than providing concessional credit.
joseph.vackayil@expressindia.com