The Telegraph
Since 1st March, 1999
Email This PagePrint This Page
Need to stoke credit flows to small units

New Delhi, Dec. 7: Worried by large scale industrial sickness afflicting small and medium enterprises, the government will hold a high-powered meeting chaired by K. C. Pant, deputy chairman of the Planning Commission, to work out strategies to prop up the sector with the infusion of fresh funds.

Top officials said the meeting, slated for early next week, will work out ways and means to slash lending rates to the SME sector. “The government is of the view that high cost of borrowings is a major constraint affecting the growth of the sector,” sources said.

Among the members scheduled for the meeting are finance secretary S. Narayan, deputy governor of Reserve Bank of India (RBI), secretary in the Prime Minister’s Office (PMO) and chiefs of Punjab National Bank, Small Industries Development Board of India and National Bank For Agriculture & Rural Development respectively.

While the small sector industries (SSI) borrow from the banks at 16-18 per cent rate of interest the lending rate is only 12 per cent for large and small industries and 8 per cent for short-term borrowings.

Said S.P.Gupta, member of Planning Commission: “The major problem facing small industry is that banks have virtually stopped lending to them. Against an average of 16 per cent lending in the past, SSI sector got just 4 per cent of total bank credit in the last quarter.”

While the meeting will try drum up advances to the sector, even more importantly it will lay down rules to force banks to start lending at near PLR to the sector. Finance ministry studies show that the sector gets loans at something like 17-18 per cent per annum compared with 7-8 per cent for large industry.

The SSI sector, which constitutes 95 per cent of the industrial units in the country, has been facing financial problems related to availability of loan due to higher collateral requirements, delay in getting a loan and the high cost of funds. “The government is also concerned on the rise in sickness of SSI units and will have a look into it,” a top government official said. “The government also favours formulation of a strategic plan for a national level policy for developing exports from the SSI sector, including identification of sub-sectors with high export potential and usage of information technology in SSI manufacturing activities,” he added.

Industry experts said the multiplicity of licences and permissions (inspector raj) required to set up a unit under SSI have hindered the growth prospect of SSI sector and had a knock on affect on the country’s gross development product (GDP) to the tune of 40 per cent.

“The expert committee report prepared by P. R. Nayak and S. L. Kapoor have very clearly stated that the SSI sector is getting inadequate and delayed credit...collateral security should be done away and specially for women who needs a double collateral security,” Vijay Kalantri, an expert in SSI sector told The Telegraph. “The processing should be simplified. As per bank rules it should not take more than 60 days. But now the processing takes sometimes as long as six months.”

At present, one needs 76 permissions in all from the central government, state government and finally the local government to set up a unit. “There are 65 government inspectors who can visit and do visit our factories under one pretext or the another and charge money from us,” an industry owner said.

As per the RBI guidelines, the banks should have priority sector lending of 40 per cent of their net bank credit (NBC) with sub targets of 16 per cent of NBC for SSI. Financial analysts say the SSI sector should be demerged from the agriculture sector with regard to credit allocation and should be put separately under the priority sector lending targets for the banking sector.

Email This PagePrint This Page