Banks not lending to SMEs under scrutiny | SupportBiz

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Banks not lending to SMEs under scrutiny

Re-classification of NPAs likely

The Parliamentary Standing Committee on Finance met with leading banks SBI, SBH, Canara Bank, Corporation Bank and the Allahabad Bank asking them to submit details of loan disbursements.

The Committee has a mandate to inspecting lending behavior; to figure out why banks prefer lending to larger firms and not SMEs; and to revisit the norms, if necessary, for the classification of non-performing assets (NPAs) i.e. bad debt, reports The Financial Chronicle (FC).

Banks maintain that high interest rates and the economic slowdown have stretched finances within most companies, especially SMEs. Most bad debts are from the telecom, steel, mining and SME sectors.

A re-classification of NPAs can leave banks with larger amounts to lend across the board. 

It must be noted here that the country’s largest lender, the State Bank of India (SBI) has decided to waive annual service fees and guarantees for loans given to SMEs, guaranteed under the Credit Guarantee Fund Trust (CGFT), according to a PTI report published in The Economic Times

The total gross NPAs of the banking system is expected to cross 5% of total advances by the end of the fourth quarter of the current fiscal. Outstanding bank credit by then is expected to reach Rs 50 lakh crore, the FC report added.