The Hindu Business Line : Banks can do more for us, say small units

The Reserve Bank of India might be trying its best to reach out to medium and small enterprises (SMEs) hit by the slowdown, but in the view of these entrepreneurs there is room for taking more policy steps.

MSMEs account for 39 per cent of manufacturing output, 33 per cent of exports and 6 per cent of gross domestic product, while employing about 300 million people. Despite the RBI’s efforts since August 2008 to step up lending to this sector, there are indications that banks have been risk-averse in recent times.

According to the Karnataka Small Scale Industries Association (Kassia), NPAs of SMEs should be appropriately restructured such that the 90-day limit does not rigidly apply in all cases.

Kassia has also urged a moratorium period of one year for all term loans, adding that penalties should not apply in the current situation to late payments. Interest rates for SMEs should be 2 per cent below the prime lending rate in line with the farm sector, it has said.

Mr K. Jayaraj Pai, President of Kanara Small Industries Association, said: “We require other measures such as reduction in interest rates by institutions such as Karnataka State Finance Corporation.”

Short-term credit

However, Mr Flavian D’ Souza, Chairman and Managing Director of INAT Technologies, takes a more optimistic view. Mr D’Souza said that banks had taken some initiative to restructure SME loans by deferring the instalments. However, much needsto be done to improve availability of short-term credit and working capital, he said, adding that banks were reluctant to take risks.

Mr D’ Souza said the Credit Guarantee Fund Trust for Micro and Small Enterprises, initiated by the RBI and Small Industries Development Bank of India, can work wonders if implemented well.

Mr H. Ganesh Kamath, Partner in Vittal Cashew Industries, said while the interest subvention for export credit would help exporters, the RBI had raised the prime lending rate several times in 2008 to curb inflation, impacting SMEs as a result. However, he added that there were signs of improvement in export demand for cashew.

Mr K. Narsimha Prabhu, Chief Executive, ACE Event Managers, said that banks were implementing interest rate reductions for the SMEs, as any economic revival depends on the performance of SMEs.

However, Mr G. Giridhar Prabhu, Proprietor of Achal Industries, a cashew exporter and processor, said that since Mangalore did not have textiles, automobiles and manufacturing, sectors hit by the global recession, it has been immune to the effects of the slowdown.

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