When the bank management starts to monitor the loan applications then obviously more SMEs will find loans. The banking sector is not doing much for the SMEs now. Not just this, even the venture capitalists are not doing enough to boost the SME sector. Many SMEs as of now do not have expertise in financial management. They need consultancy services to manage their financial condition.

Chakrabarty said that banks should maintain transparency in interest rates and should keep disclosing the interest rate that they are charging. Top banking officials, however, say that bank officials are compassionate and are willing to grant loans to business enterprises.

• The RBI has decided to make it compulsory for banks not to ask for any collateral for loans amounting up-to Rs.10 lakh when the loan is borrowed by Micro and Small Enterprises. (MSMEs). This will help in the growth of entrepreneurship that would eventually result in the launch of cheaper and better products in the market.

• RBI is forming empowered committees at its regional offices with RBI’s regional director as Chairman. This committee will review the progress in MSME financing and rehabilitate SME and SSI that are in a poor state. The committee shall also coordinate with other banks, financial institutions and state governments to improve bottlenecks and mandate smooth flow of credit to MSME sector. The regional committees shall also be instrumental in forming similar committees in district levels.

• The policy ensures specialized SME entrepreneurs to have easy access to credit and also equips bank personnel to gain required expertise. Re-designation of the existing SSI branches to SME branches are also on the anvil. This will surely lead to rise in competition among banks to lend money to SMEs. This will also help them to be better  equipped and flexible to extend finance and other services to SMEs.

• According to the circular issued by RBI on lending to SSI, vide circular RPCD.PLNFS.BC.No.03/06.02.31/2005-06 dated July 1, 2005, makes it mandatory of banks to accept loan applications of SSI units and also states a limit up to which banks shall be obliged to offer collateral-free loans. Based on these guidelines, more liberal policies for granting of loans to MSMEs can be formulated in-comparison to the existing policies. Till the Board of Banks formulates such policies, the current instructions of Reserve Bank are applicable to granting of loans for the SME sector.

RBI credit policy for MSMEs has opened up the scope for SMEs to expand and grow. The policies also provide an opportunity to nation to harness its latent strength in the form of MSMEs. The new guidelines are a guarantee to see the birth of new entrepreneurs.

This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to
info@biz2credit.com

Keeping MSMEs outside base rate regime would enable this sector access liquidity at relaxed rates since making BS rate regime applicable on such industries would erode their competitive edge, said ASSOCHAM.

While interacting with RBI Governor D Subbarao at a meeting of Indian industry for framing it’s forthcoming Monetary Policy at Mumbai on Tuesday, ASSOCHAM President Swati Piramal stressed that proposed base rate regime shouldn’t be applicable to MSMEs sector.

The RBI intends to bring in base rate regime in vogue from 1 July 2010 to ensure uniformity of lending rates from commercial banks to industry but if it is made applicable to MSME sector, it will stop enjoying benefits of relaxed rates of interest from banking institutions.

In addition, the industry chamber has proposed that the present criteria of investment in plant and machinery to determine status of micro, small and medium enterprises be raised respectively to Rs.50 lakh, Rs. 7.5 crore and Rs.15 crore for manufacturing sector.

Currently investment ceiling in case of micro industries engaged in manufacturing is pegged at Rs.25 lakh as against Rs. 5 crores for small industries and Rs.10 crores for medium enterprises.  These ceilings were fixed way back in 2004 and now need revision, feel the industry body.

As regards to increase ceiling of investment in plant and machinery to determine status of micro, small and medium enterprises, Pirmal pointed out that in view of huge inflation in last 4-5 years, limits fixed are not in consonance with present price levels for similar scale of operations.

The bank expects to bring in around Rs 700 crore in the deal. Once cleared, SIDBI would become a strategic partner of the bank, according to the the Economic Times.

P&S Bank would help MSME financing by providing technical support from SIDBI.
The deal would help SIDBI expand its MSME business through the bank’s branch network, said the Economic Times.

The suggestion was presented at the CII meeting with banks and economic secretaries.

Additionally, the Reserve Bank of India will extend a Rs 7,000 crore line of credit to SIDBI (Small Industries Development Bank of India) before March 31 to provide loans to Indian small businesses. Out of the Rs 7,000 crore, about Rs 6,500 crore will be lent to public sector banks at a rate of 6.5 per cent. The rest of the funds will go to State Finance Corporations.