In a recent official statement, the Reserve Bank of India (RBI) has directed the public sector banks for setting up some specialized branches hat would provide service for the fast-growing small and medium enterprises (SMEs). The officials of RBI have informed that this order is actually an addition to the directive to redesignate the specialized Small Scale Industries branches as the SME branches. They also said that the RBI has issued the two directives only after recognising the need for SMEs to secure easy access to the credit and specialized service and transaction costs.
While announcing the order of RBI to the banks, the Regional Director of RBI, Devaki Muthukrishnan said, "Banks have been advised to adopt cluster-based approach to SME financing and displaying instructions ô guidelines formulated by banks as well as by RBI on their websites. Banks have also been advised to identify and select clusters of SME units which share a homogeneity and critical mass". She also said, "Banks have to fix their own targets for funding SMEs in order to achieve a minimum 20 per cent year-on-year credit growth to SMEs. The objective is to double the flow of credit from Rs 67,600 crore in 2004-05 to Rs 135,200 crore to the SME sector by 2009-10 within a period of five years".
The officials from RBI have stated that the authority has also asked the banks for adopting a more simplified, non-discretionary and non-discriminatory mechanism for the one-time settlement of the chronic non-performing assets, valued below Rs 10 crore in the SME sector. According to Devaki Muthukrishnan, "A debt restructuring mechanism for units in the SME sector has also been put in place by banks with outstanding up to Rs 10 crore". She further informed that the RBI has also operationalised the Credit Information Bureau of India Ltd (CIBIL), for increasing the flow of credit and institutionalize appropriate risk management systems for SME lending. She also said that this would be helpful for reducing the transaction cost and improving the credit flow to the SME sector as well.
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| Posted : 2/26/2008 |
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