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RBI urges banks to extend help to MSMEs
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SME Times News Bureau | 22 May, 2010
The Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty Friday said that there is a need for greater participation by banks to help the country's micro, small and medium enterprise (MSME) sector both with credit and non-credit services.
"With increasing competition, introduction of new products and stringent regulatory environment, the role of banks needs to change from mere lenders to partners in business. There is a need for greater participation of banks in the affairs of their constituents by convergence of credit services and non-credit services," Chakrabarty said after releasing the India, Micro, Small and Medium Enterprise Report 2010 at a function in Kochi.
He also urged the banks to implement the RBI guidelines and significant policy initiatives which facilitate ease of credit flow to small entrepreneurs, adding that banks should not only provide differentiated products for MSMEs, but also provide counselling and guidance to new and established businesses, extending marketing support etc.
According to the RBI Deputy Governor, the government and other institutions entrusted with development of the MSME sector also need to focus providing an enabling environment, infrastructure and forward & backward linkages so that the credit function being discharged by the banks is adequately supplemented by their non credit functions.
In his speech, Chakrabarty informed that the Reserve Bank of India has instructed all banks to extend a helping hand to MSMEs, but added that the the enterprises should not seek concessional credit.
"MSMEs should not to ask for concessional credit. And units that are unviable and not creditworthy should not be given credits," Chakrabarty said.
The RBI official said the failure rate is relatively higher in the MSME sector primarily due to delayed and inadequate availability of credit to non-availability of backward and forward support system, but despite the risks involved financing of first time entrepreneurs is a must for financial inclusion and growth.
He emphasized on setting up a adequate and reliable credit information mechanism, such as an SME credit bureau as SMEs are historically a high risk group lacking in financial discipline and unable to provide trustworthy financial track records.
In his speech, Chakrabarty stated that the government has set up an expert group to examine the modalities to set up a separate umbrella organization which can provide all comprehensive services to the SME sector under one roof and also look at providing disaster assistance to small enterprises on the lines of Small Business Administration, USA.
He said that there is a need to promote factoring services without recourse in the country for MSMEs and a suitable legal framework for promotion of factoring services without recourse in the country for MSMEs needs to be evolved.
The RBI official also added that entrepreneurship development is important in view of its visible impact on wealth creation and employment generation. "A small entrepreneur today will be a big entrepreneur tomorrow, and might well become a multinational enterprise eventually if given the comfort of financial support," he said.
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