SFCs told to draw new lending models for more credit to SMEs

Hyderabad, Nov 15 | Updated: Nov 16 2005, 05:30am hrs
The state finance corporations (SFCs) should look for new lending models including working closely with public sector banks in extending loans to the small and medium enterprises (SMEs) sector, finance minister P Chidambaram said here on Tuesday.

Speaking at the Golden Jubilee celebrations of the Andhra Pradesh State Financial Corporation (APSFC) here, the FM said that institutional lending to SMEs is just 5% of the GDP as against over 50% in the US and Europe and other developed countries.

The government has targeted to take the loan ratio to SMEs to 25% from the existing 5% in the next five years, Mr Chidambaram said.

Reasoning for hampering economic growth due to lower credit flow to SME sector, Mr Chidambaram said that he will convene a meeting of CMDs of PSU banks in the next two days to discuss ways to enhance the credit flow to small sector.

PC plainspeak

Coming down heavily on the poor performance and ill health of the state financial corporations (SFCs), finance minister P Chidambaram said that over the years the SFCs have neglected fundamental financial prudence.
Thats why they are sick, he quipped. He pointed that while the NPAs of PSU banks is around 2%, the NPAs of SFCs is 10 times. Indulging in some self-confessed plain speak to the SFCs, the finance minister said that its absolutely important that the health of SFCs is restored.

He also felt that SFCs must look to partner with PSU banks in enhancing their lending portfolio. I will definitely do the needful to the idea of APSFC to partner with Andhra Bank and the State Bank of Hyderabad, he said.

Elaborating the Central role in improving the health of SME sector, Mr Chidambaram said that the government has established credit guarantee fund with a corpus of Rs 930 crore and for sunrise industries like IT, BT etc with a corpus of Rs 500 crore and national equity fund jointly with SIDBI.

Earlier, speaking on the occasion, the Andhra Pradesh chief minister YS Rajasekhara Reddy said that since SFCs have been created by an Act of Parliament, the Centre must have a role in reviving them.

The CM requested the finance minister to consider providing matching equity of Rs 50 crore to APSFC as against the states share, to which Mr Chidambaram responded that he would take note of the CMs request.