MSME MINISTRY MOOTS PROPOSAL FOR SSI SUB-SECTOR Gunjan Pradhan Sinha HYDERABAD BANKS may have to earmark 10% of their advances every year for the small-scale sector if the Reserve Bank of India (RBI) endorses a proposal mooted by the ministry of micro, small and medium enterprises (MSME). The ministry has made out a case for fixing a sub-target for loans to the small-scale sector — comprising small and micro enterprises — to ensure a more serious commitment to the sector. It has cited the recommendations of a parliamentary committee to bolster its case. Bank loans to the small-scale sector are covered in the overall priority sector lending norms. Going by the norms, public and private sector banks are mandated to allocate 40% of their net bank credit to the priority sector. There is a subtarget for loans to the farm sector: 18% of the net bank credit should be earmarked for the sector. Micro and small enterprises, retail trade, housing and education are also categorised as priority sector. However, there are no sub-targets for the sectors. This means small-scale units have to compete with others such as retail traders, transporters, self-employed professionals and others to access bank credit. According to a senior official, the share of loans to micro and small enterprises has witnessed a significant drop over the last decade or so: it has declined from 17.5% of net bank credit to 7.5%. The sector is also facing pressure due to the rise in interest rates — loans have become more expensive. “The MSME ministry has already written to RBI and the ministry of finance on the issue,” a senior government official said. The move follows a decision taken at a meeting of the National Board of Micro, Small and Medium Enterprises headed by the Union MSME minister Mahabir Prasad. Going by regulations, banks have the leeway to set targets for advances to the small-scale sector. Loans extended by public sector banks — such as the State Bank of India, Union Bank of India and Bank of Baroda — to SMEs have posted a healthy growth. However, some other banks have lagged behind, raising concerns from the government side. On its part, the government has asked banks to ensure a 20% year-on-year credit growth in the SME sector. “If the move gets RBI nod, it will mean a minimum benchmark will be set for lending to the sector. This would, in fact, help small-scale and micro entrepreneurs. As far as nationalised banks are concerned, achieving the target will be no problem as they have a huge rural and semi-urban lending network where these enterprises mostly operate,” Union Bank of India manager (SME lending) said.