The Telegraph
Since 1st March, 1999
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RBI credit boost to small-scale units

New Delhi, Dec. 22: In an effort to boost credit offtake in the small-scale sector, the Reserve Bank of India may fix a minimum credit-allocation target for commercial banks for the sector within the overall priority-sector lending target.

The sector has been facing financial problems due to scarcity of funds compounded by their high cost.

According to the RBI guidelines, banks currently have to lend 40 per cent to the priority sector with sub-targets of 18 per cent for agriculture, 10 per cent for weaker sections of society and the remaining 12 per cent for other sectors including small-scale industries.

“There is a debate about fixing a minimum lending target for the SSI sector, but the options are open,” said Vepa Kamesam, deputy governor of the RBI at a conference on ‘Small and Medium Enterprise Finance Regeneration’. Financial analysts said the credit allocation for the SSI sector should be immediately demerged from the agriculture sector and put separately under the banks priority sector lending targets if the government is seriously thinking of reviving the SSI sector.

“Commercial banks earlier lent almost 17 per cent of their credit allocation to SSIs. If they are not doing so now is only due to the higher non-performing asset level of the sector,” Kamesam said. However, finance ministry sources differed: “While the average non-performing assets of the banking industry stands at around Rs 70,000 crore, small-scale units account for only around Rs 4,500 crore, but banks still prefer large and medium industry units for advances.”

The public sector banks’ net bank credit (NBC) outstanding to the SSI sector for the fiscal 2001-02 has slipped to 12.5 per cent of NBC from the earlier 14.2 per cent of NBC (2000-01) whereas the overall NBC grew by around 10 per cent to Rs 3.96,954 crore in 2001-02 from Rs 3,40,888 crore in the year ago period.

Kamesam was in town recently to work out a strategy with top government officials and bankers for infusion of fresh capital in small sector industries, which constitute 95 per cent of the industrial units in the country.

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