Banks Asked to Up Credit Flow to SMEs
Wednesday, July 6, 2011
While bank advances were growing above 20 per cent yearly, lending to small and micro enterprises (SMEs) should also grow at a decent pace, the Reserve Bank of India (RBI) told banks in the annual review meeting of its standing advisory committee on SMEs on Tuesday.
“Credit growth is more than 20 per cent, higher than RBI’s projection. In Tuesday’s meeting, the focus was that micro credit also should grow. Banks will try to see how to step up credit, especially to small manufacturing units,” said D L Rawal, chairman and managing director, Dena Bank.
Lending to SMEs is affected in this rising interest rate scenario. The borrower’s loan repaying capacity is also likely to be impacted. “As of now, there are no concerns on asset quality in the sector but if interest rates keep increasing there could be some non-performing assets across sectors going ahead,” Rawal added.
According to data provided by RBI, bank credit to SMEs grew by 13 per cent in May, as compared to 14.8 per cent growth in the same month in 2010. Lending to the sector constituted 6.3 per cent of the total non-food credit and 14 per cent of the total credit to industries in May.
Punjab National Bank Chairman and Managing Director K R Kamath, who also attended the meeting, said banks were given instructions to step up credit to the micro and small units to 55 per cent of the total SME financing by 2012 and 60 per cent by 2013.
Also, the number of accounts should grow by 10 per cent every year, said Rawal.
Issues in areas of infrastructure, skill development at ground levels and creating awareness on credit guarantee trust for micro and small enterprises at grass roots levels were also discussed in the meeting.