SMALL and medium enterprises (SME) can look forward to cheaper credit. Apart from lower interest rates, they are also likely to get more credit from the banking system and direct access to the Small Industries Development Bank of India (SIDBI). The National Board for Micro, Small and Medium Enterprises (NBMSMEs) has urged the Reserve Bank to direct banks to earmark at least 10% of their loan disbursals to micro and small units. SIDBI should expand its direct lending and function like a bank, the recently-constituted Board has emphasised.
According to government sources, the Board also discussed ways to ensure that cost of credit for small units is at least 1% cheaper than the prime lending rate (PLR) which is available to large corporates. At present, the rate at which the loans are extended to large enterprises ranges between 9% to 10%. If the board has its way, SMEs could be given loans at 8% or 9%. At present, SMEs have to pay at least 11% on loans from the banking system.
“Due high-risk factors, the sector does not get access to cheap and easier credit. Non-availability of timely credit is the major cause of SME sickness today,” a senior government official said. The government wants to emulate Japan where SMEs get loans at 2%. “Maybe we cannot do a Japan in one go but we should move in that direction. We can empower the sector through such initiatives. Only then the SMEs can be competitive in India,” the official said.
The government is also planning to create special package for the SMEs to subsidise credit to this sector. Ministry of small and medium enterprises has asked RBI and IBA to prevail upon banks to provide loans for SMEs on easy terms, which is the biggest employmer in the country after agriculture. “RBI has been asked to incentivise the banks who perform outstandingly for the sector,” the official said.
According to government sources, the RBI is of the view that SMEs being partnership firms or proprietorship concerns are perceived as high risk in the banking sector. Moreover, NPAs are high in the sector.
SMEs are expected to get a larger share of the Rs 33,000 crore that is likely to be disbursed as priority lending during the current financial year since many sectors have been taken off the priority list. An additional amount of Rs 22,000 crore would be available for priority sector lending which is targeted at sectors like agriculture, education and housing.