Small and medium enterprises (SMEs) of the country are not very optimistic on whether banks would act on Reserve Bank?s advice to restructure loans and disburse working capital up to the agreed limit. Issuing such guidelines is a routine act of the central bank, they said expressing their doubts.
?The RBI issues suggestions in very 2-3 years. These are not binding in nature. Banks generally ignore such suggestions. It?s only in rare cases they are observed,? Federation of Indian Small and Medium Enterprises secretary-general Anil Bhardwaj told FE .
RBI, in a circular late Monday, advised banks to consider restructuring dues of SMEs on merits of the case. The circular was issued in the wake of complaints that some banks were not restructuring dues where required. On working capital disbursal, the central bank said as the liquidity situation has improved, the financial institutions could permit disbursal of the sanctioned limit to SMEs.
Restructuring of loan is required where SMEs have defaulted on the payment of some installments or want to expand their unprofitable business and need to raise more funds or in cases where more than one bank is involved.
?Credit disbursal is an age old problem for SMEs. Banks don?t disburse the required amount. RBI had on September 8, 2005 issued a debt restructuring mechanism for SMEs. The new circular is just a reiteration of those guidelines,? an official in the ministry of small and medium enterprises said.
However, some feel the new circular will make some difference to credit disbursal and restructuring of loans. ?Banks are generally very cautious when it comes to credit to SMEs and restructuring loans can only be done on case-to-case basis and can?t be made a policy. The RBI advise may have some positive impact for the small units even though it is likely to be at a higher interest rate,? National Small Industries Corporation head HP Kumar said. He said some banks do follow the RBI norms in restructuring loans and disbursal of credit.
SMEs have been complaining of inadequate credit and inability to expand business. The situation turned from bad to bitter after RBI raised the slice of deposit banks have to keep in reserve?cash reserve ratio (CRR)-to 9%, which reduced liquidity in the banking system. Following this, banks slowed disbursal of loans across the economy, particularly to sectors they consider risky.
Some banks stopped the facility of overdraft and loan restructuring for SMEs. ?Banks were instead asking SMEs to regularise their accounts and repay the money they have overdrawn,? Faridabad Small Scale Industries Association president Rajive Chawla said.