MSMEs likely to get 6% of net bank credit

An inter-ministerial group has approved earmarking of 6% of net bank credit for micro enterprises under priority-sector lending to enhance the fund availability to the beleaguered sector. However, the proposal has to cross a few “hurdles” before it could be implemented, micro, small and medium enterprises (MSME) secretary Dinesh Rai said.

The MSME ministry was earlier talking to the finance ministry and the Reserve Bank of India (RBI) for a separate priority-sector lending target of 15% for MSMEs. But even after deliberating on the issue for almost a year, it failed to convince the two entities and has now accepted the proposed 6% marking for the micro units only. Enterprises with investment of up to Rs 25 lakh are categorised as micro.

The MSME ministry had proposed the 15% target for MSMEs last August, but the finance ministry and RBI did not agree on the same. In a report submitted to Prime Minister Manmohan Singh on April 30 this year, National Commission for Enterprises in the unorganised sector also recommended 12% lending target for MSMEs under priority sectors.

As per the present arrangement, domestic banks have to lend 40% of adjusted net bank credit or credit equivalent amount of off-balance sheet exposures, whichever is higher, as on March 31 of the previous fiscal to agriculture, housing, MSMEs, etc. The norm for foreign banks is 32%.

After mid-September last year, credit supply slowed down. Up to March 27 of the previous fiscal, public sector banks’ advance book expanded by 20.4% vis-à-vis 22.5% in the previous year. However, private sector banks and foreign banks recorded only 10.9% and 4% increase in credit offtake, respectively, against about 19.9% and 28.5% a year ago.

Courtesy: The Financial Express (July 23, 2009)