MSMEs may be part of priority sector lending
MICRO and small enterprises (MSE) may soon get easy access to banking credit with the government planning to fix a 10% sub-sector target for units falling in the category. The sub-sector target will be within the overall stipulated 40% ceiling for priority sector lending targets of banks. To accommodate the proposed new sub-sector, the total ceiling for priority sector lending has to be increased marginally.. The move is aimed at addressing the severe shortage of funds for the MSE sector which has progressively declined as a proportion of net banking credit over the last few years. With banks total credit standing at about Rs 18 lakh crore last year and growing at a projected 30%, about Rs 10 lakh crore would be available for priority sector lending. A sub-sector target may release about Rs 2,00,000 crore for the MSE sector. The proposal is part of the recommendations of the Planning Commission made in the Eleventh Plan document that has been cleared by the Cabinet. The document now awaits final clearance by the National Development Council (NDC) headed by Prime Minister Manmohan Singh after which it would be put for implementation by various government departments and ministries. “The Commission has favoured a subsector target within the priority sector ceiling for MSEs considering their immense importance to the country’s industrialisation. The sector contributes about 39% of country’s gross manufacturing output , 34% of exports and provides employment to nearly 33 million people. However, credit to the sector has declined from 17.1% of net banking credit in 1998 to 8.1% at the end of March, 2006,” an senior official of the Commission said. As per the recommendations, a separate sub-sector target of 10% of the adjusted net bank credit (ANBC) should be created and it should apply to all scheduled commercial banks. This could be achieved, the commission has recommended, by increasing the priority sector ceiling to 45% or 50% of the ANBC. At present there is no sub-sector target for MSE sector within the overall priority sector ceiling. Since sub-targets have already been fixed at 18% for agriculture and at 10% for weaker sectors, the MSE sector has to compete with real estate, housing, education , retail etc. for the remaining 12%.