Unable to accurately ascertain the impact of various government programmes to facilitate bank credit to the micro, small and medium enterprises (MSMEs), the micro, small and medium enterprises ministry has initiated a process to fix a separate target for the sector under the priority sector lending norm.
As per the present arrangement, domestic banks have to lend 40% of adjusted net bank credit (net bank credit plus investments made by banks in non-SLR bonds held in hold-to-maturity category) or credit equivalent amount of off-balance sheet exposures, whichever is higher, as on March 31 of the previous fiscal.
The norm for foreign banks with operations in India is 32%. Priority sectors include agriculture, education, housing and MSME.
The absence of a separate target for the MSME sector poses a problem for officials to gauge the effectiveness of government programmes on facilitating loans.
?Many sectors are included in the priority sector lending requirement and it is very difficult to accumulate the data specifically for the MSME sector and ascertain whether the government programmes are running successfully or not. We have written letters to the finance ministry and the Reserve Bank of India on the issue and expect results in some time,? a senior official in the MSME ministry said. According to government data, outstanding credit to MSMEs has increased from Rs 58,278 crore at the end of March 2004 to Rs 1,48,651 crore at the end of last fiscal. While credit growth in 2005-06 was 21.9%, 2006-07 saw an increase of 26.9%, to be followed by an over 40% jump in loan disbursal.
The official questioned the data saying, ?Banks are more focused on housing and education to meet the priority sector lending norm. Even if they lend money to small enterprises, they ask for collaterals or guarantee, which these units could not always manage to give?.
He said banks were not against giving loans to small industrial units but for the environment created by RBI.
The central bank has increased the key short-term lending rate, repo rate, to its seven-year high of 9%, making loans to banks expensive. On their part, banks raised prime lending rates and strengthened their credit appraisal procedure to prevent defaults and the resultant non-performing assets.
The fear of farm loan waiver of over 71,000 crore deteriorating the credit culture may also have played a part in the tightening of money supply to the vulnerable sectors.
?The government can only facilitate credit availability to the sector. It is up to banks to give loans. If an SME faces any difficulty in getting loans, we are ready to take the necessary steps,? Dinesh Rai, secretary at the MSME ministry, said.
The government is running schemes like Credit Linked Capital Subsidy Scheme for Technology Upgradation and Credit Guarantee Scheme for the development of small units.