RBI Deputy Governor releases India Micro, Small and Medium Enterprises Report 2010

Microfinance Focus, May 21, 2010: Dr K C Chakrabarty, Deputy Governor, Reserve Bank of India has today released the India Micro Small and Medium Enterprises [MSMEs] Report 2010 of Institute of Small Enterprises and Development (ISED) at Kochi, India. While addressing the gathering Dr. Chakrabarty discussed the present status of Bank Credit for MSMEs and the way forward. “If India has to have a growth rate of 8-10 percent for the next couple of decades, it needs a strong MSME sector, without which it cannot be achieved. There are approximately 3 crore MSMEs in the country. The SMEs have shown an average growth of 18 percent over the last five years. Around 98 percent of the production units are in the SME sector” he said.

MSEs primarily rely on bank finance for a variety of purposes including purchase of land, building plant and machinery as also for working capital, etc. As at the end of March 2009, the total outstanding credit provided by all Scheduled Commercial Banks (SCBs) to the MSE sector was Rs. 2,56128 crore, constituting 11.4 percent of the Adjusted Net Bank Credit. Credit flow to MSMEs had therefore, doubled from Rs 1,27,000 crore in 2006-07 to Rs 2,57,000 crore in 2008-09. In 2007-08, credit flow to the sector was Rs 2, 13,000 crore. In September 2009 the total outstanding credit stood at 323565 crore and in February 2010 it further increased to Rs 369866 crore. 

RBI has recently taken several measures to enhance credit delivery to the employment intensive micro and small enterprises (MSE) sector.  One of the major concerns of the MSE sector is the inability to arrange for collateral security and or third party guarantee. As a result, new entrepreneurs find it difficult to access credit from the banking system. Accordingly, RBI have issued guidelines from time to time thereby advising banks to grant collateral free loans  up to Rs. 5 lakh sanctioned to the units of MSE sector (both manufacturing and service enterprises). Further, banks have also been advised to lend collateral free loans up to Rs.25 lakh, based on good track record and financial position of the units.

A Working Group was set up by Reserve Bank of India to review the Credit Guarantee Scheme of the Credit Guarantee Fund Trust for Micro and Small Enterprises and suggest measures to enhance its usage. The Group has submitted its final report which was released on March 6, 2010 .Some of the main recommendations of the Working Group include mandatory doubling of the limit for collateral free loans to micro and small enterprises (MSEs) sector to Rs.10 lakh from the present Rs. 5 lakh, increase in the extent of guarantee cover, absorption of guarantee fees for the collateral free loans by CGTMSE subject to certain conditions, simplification of procedure for filing claims with CGTMSE and increasing awareness about the scheme, etc. 

 As on date, 41 scheduled commercial banks have reported to have complied with the requirement of setting up a dedicated loan policy on MSE, 40 scheduled commercial banks with the requirement of setting up a rehabilitation/restructuring policy and 39 scheduled commercial banks on setting a non-discretionary One Time Settlement scheme for recovery of non-performing loans.

Recognizing the importance of the sector and the various constraints being faced by the sector a High Level Task Force has been constituted by the Government of India under the chairmanship of the Principal Secretary to the Hon’ble Prime Minister to consider various issues raised by various MSME associations and draw up an agenda for action. The Task Force which submitted its final report on January 30, 2010, has made several recommendations on issues relating to credit, taxation, marketing, labour, exit policy, infrastructure/ technology/skill development and special packages for North East and Jammu and Kashmir, etc. A Steering Group on MSME has been set up by the GOI to review the implementation of the recommendations of the Task Force.

Dr. Chakrabarty also indicated that the Government of India may consider setting up a National Equity Fund to help green field projects and new generation entrepreneurs to tide over difficulties faced in start – up finance. There is 96% exclusion of the small entrepreneurs, it is, therefore, imperative that they are financially included and brought in the formal banking system, the GOI , based on the recommendations of the PM’s Task Force on MSMEs has decided that there should be an annual growth in the number of micro enterprise accounts be for the present fixed at  10% for banks to achieve  and also strict adherence by banks to the allocation of 60% to micro enterprises of the total MSE lending which should be done in stages viz. 50% in the year 2010-11, 55% in 2011-12 and 60 % in the year 2012-13.

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