RBI asks banks to provide collateral free loans to MSEs

New Delhi, Oct 21 (KNN)  The Reserve Bank of India has advised banks to provide collateral free loans to micro and small enterprises with credit limits upto Rs one million to ensure their growth and development.

“As availability of timely and adequate bank credit without the hassles of collateral and third party guarantees is of essence to small first generation entrepreneurs, the Reserve Bank of India had enjoined upon banks to provide collateral free loans to Micro and Small enterprises with credit limits up to Rs.1 million,” said Deputy Governor, Reserve Bank of India, K C Chakrabarty said in a recent address here. 

He dwelt at length about MSME financing, reiterating the critical role and place of the MSME sector in employment generation, exports and economic empowerment of a vast section of the population in the Indian economy.

The MSMEs, the Deputy Governor said, primarily rely on bank finance for their operations and as such ensuring timely and adequate flow of credit to the sector has been an overriding public policy objective.  

Speaking at the International Factors Group’s Annual Conference, he admitted that over the years there has been a significant increase in credit extended to this sector by the banks.

As at the end of March 2013 the total outstanding by all Scheduled Commercial Banks (SCBs) to the micro and small sector (MSE) sector stood at Rs 6847.96 billion as against Rs 5276.84 billion in March 2012, Rs 4785.27 billion in March 2011 and Rs 3622.91 billion in March 2010.

However, despite the increase in credit outstanding to the sector, availability of timely and affordable credit remains a critical issue of the sector.  On their part, the government and Reserve Bank of India are taking the lead in supporting initiatives that improve access to finance, Chakrabarty said.

One of the RBI measures was to advise banks to draw up a roadmap to provide banking services through a banking outlet in every unbanked village having a population of over 2,000 by March 2012.

He said that banks have successfully met this target and have covered 74398 unbanked villages. In the second phase, Roadmap has been prepared for covering remaining unbanked villages i.e. with population less than 2000 in a time bound manner. About 4, 90,000 unbanked villages with less than 2000 population across the country have been identified and allotted to various banks.

The Deputy Governor also spoke about constituting an inter-ministerial committee to boost exports from the MSME sector, the need for rehabilitation of sick units, to address issues concerning the sector, the need for handholding, technology upgradation, skill building, etc.
 
As per estimates released by the Ministry of MSME, there are about 36.1 million enterprises in this sector employing nearly 80.52 million people. The sector accounts for 45 per cent of manufactured output and 8 per cent of the GDP. MSMEs contributed close to 40 per cent of all exports from the country.