No Banks shall refuse credit to MSME: K C Chakrabarty, Deputy Governor, RBI

At the Confederation of Indian Industry(CII) organized Conference on Finance Availability for MSME’s seeking to achieve modes for adequate finance for the growth and sustenance of MSME in India Dr K C Chakrabarty, Deputy Governor, Reserve Bank of India announced that there is no dearth of credit in the system and no bank shall refuse credit to viable and transparent enterprises. Dr. Chakrabarty said, the spirit of entrepreneurship in India is kept alive by MSME’s and made an impassioned appeal to the audience to adhere to self regulation for credit worthiness. Despite the global financial crisis, there was enough liquidity in the Indian banking system and banks were willing to extend credit to viable projects

Addressing the industry’s concerns that banks were not lending to the MSME sector, he said credit flow to MSMEs had 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.

Today, there is no bank in this country who will refuse money. Your problem is you do not require credit, you require money. Credit has to be self-liquidating on a viable project and has a cost, he said. Chakrabarty suggested to banks that they should not be as aggressive as venture capitalists and must do their own assessment before advancing loans without depending on the credit rating agencies.

Highlighting the importance of MSMEs, Dr. Chakrabarty said that MSME is the best vehicle for inclusive growth, to create local demand and consumption and also to fight with the global meltdown. Commenting on the availability of finance to these enterprises he agreed that only 4-5 % MSMEs are covered by institutional funding given that approx 95 % of villages are not covered by banks. He then added that MSMEs have the best opportunity and that RBI will not set a target on funding and will ensure that finance is available to all. He stressed on the importance of angel investors, venture funds moving into SME sector and also suggested that the rating agencies into SME rating should adopt the scoring model which simplifies and makes the process more efficient.

Dr. H P Kumar, Chairman and Managing Director, The National Small Industries Corporation (NSIC) elucidated that the high and diverse prime lending rates of banks require benchmarking and uniformity, and follow innovative international models for better credit flow to the MSMEs sector. Mr. Kumar mentioned that although instruments like credit guarantee schemes and specialized rating agencies are present there is huge reluctance and low awareness amongst the enterprises to take advantage them. He stressed on alternate credit options like venture funds and factoring and also questioned the ever alarming cost of raising funds for the MSME sector.

Mr. Salil Singhal, the Chairman of CII National MSME Council urged every enterprise to follow good governance and financial management policies to avail of easy financing by financial institutions to create an enterpreunaral eco system which adapts. He suggested the banks to streamline into an identical process of assessment of credit worthiness and believed that convergence on the formats would promote efficiency.