SMBs ask FM to make banks give loans to sector | SupportBiz

Finance Forum

SMBs ask FM to make banks give loans to sector

India’s small and medium enterprises have petitioned Finance Minister P Chidambaram to ensure that banks comply with Reserve Bank of India directives to offer small firms credit at moderate interest rates.

M Rafeeque Ahmed, President of the Federation of Indian Export Organisations (FIEO), in a letter to the finance minister, also hoped that large banks would provide funds at a mark-up of not more than 10 basis points, thus reducing the interest rate on Packing Credit in Foreign Currency (PCFC), the Business Standard reported.

“We are unable to match any of our competitors’ prices, especially China, where the cost of credit is only 6.5 to seven per cent, while ours goes up to 14 per cent,” he told Business Standard.

The difference in cost of credit between Indian MSMEs and their competitors is in the range of five to six percentage points, he said. “On the availability of credit, he said, “There is no flow. Banks are shying away from MSMEs, which cater to both domestic and international markets. For exports, foreign currency is not available at all.” The declining share of export credit as a percentage of Net Bank Credit (NBC) and also as a percentage of exports is adversely affecting exports, he said.

While the compound annual growth rate (CAGR) of exports over the last decade was 19.11 per cent, that of export credit was far lower at 13.45 per cent. Export credit as a percentage of NBC has declined over the years, to only 4.2 per cent as on December, 2011 compared to 9.8 per cent as on March 24, 2000.

“There is an apprehension that since banks now operate in an environment of de-regulation, advisories such as the RBI’s often succumb to the pressures of profit and bottom lines. Hence in order to obviate such a situation, a monitoring committee must be put in place by the Ministry of Finance, to enable all MSMEs to benefit from the RBI’s directives,” said Ahmed.