RBI asks banks to adhere to guidelines on SME credit

Stopping short of censuring banks for harassing small and medium enterprise customers, the Reserve Bank of India asked lenders to follow rules laid down by it for advancing loans to SMEs.

As per RBI guidelines, banks are not supposed to insist on collateral security from SMEs for advances up to Rs 5 lakh but only take into account the viability of their projects while granting loans, the apex bank's Deputy Governor Usha Thorat said at a seminar organised by Indian Banks Association (IBA) in Mumbai.

However, some banks were not adhering to the guidelines and were asking for collateral, she said, adding that in many cases banks had not even analysed their SME portfolios properly.

"For SME-loans up to Rs 5-Lakhs, banks are not supposed to ask for collateral security...(but) a few banks are insisting on that... very few banks have analysed their own SME portfolios," Thorat said.

SMEs account for nearly 39 per cent of country's manufacturing output and more than 34 per cent of exports, according to Directorate General of Commercial Intelligence and Statistics' data for 2007.

The Reserve Bank had last year asked leading banks such as State Bank, Indian Overseas Bank, Canara Bank and Indian Bank to conduct a survey in certain districts to ensure whether banks were complying with its norms.