Rs 62,000-crore stimulus package for credit-hit MSMEs on cards

Monalisa Roy, Sandip Das

Jan 27, 2009

New Delhi, Kolkata: Micro, small and medium enterprises (MSMEs) could be the biggest beneficiary of the next stimulus package of the government. The MSME ministry has asked the Reserve Bank of India (RBI) for a Rs 62,000-crore priority sector lending for the sector.

The RBI has, in fact, convened a meeting with banks and representatives of the sector on February 3 to chalk out ways to inject credit into the sector, which now finds it impossible to raise funds owing to tight liquidity situation at home and abroad.

At present, priority sectors such as agriculture, education, health and MSME get 40% of year’s total bank lending, of which agriculture has sub-target of a mandatory share of 18%. According to an official, the MSME ministry has proposed to RBI that the sector be given a mandatory 15% share of the total priority sector lending. “The sector had received around 12% of the priority sector lending last year,” the ministry official added.

Industry sources said due to the credit squeeze, SMEs are even denied overdraft facilities by banks. Banks are even reluctant to renew working capital limits to utilised amount and not up to sanctioned limits.

“Credit flow to SMEs has simply dried up, we have been asking for a mandatory sub-target of 15% credit allocation from the priority sector lending by the banks to SMEs,” Anil Bhardwaj, secretary general, Federation of Indian Micro and Small & Medium Enterprises (FISME), told FE. In the last two stimulus packages since December 2008, the government has announced series of measures to augment flow of credits to around Rs 13 million to SMEs, which have been hit hard by global financial turmoil and slowdown in the domestic economy. The sector employs 31 million people.

One of the measures announced by the government was to ensure s pecial monthly meetings of state-level bankers’ committees, in collaboration with banks, department of financial services and other concerned state-level agencies, for overseeing credit outflow.

The government also announced increasing the guarantee cover under Credit Guarantee Scheme for MSMEs on loans from Rs 50 lakh to Rs1 crore with a guarantee cover of as high as 85% for the credit facility up to Rs 5 lakh. The government had set up the Credit Guarantee Fund Trust for MSMEs back in 2000 in collaboration with Sidbi for providing counter guarantee to loans extended to SMEs.

The ministry is also pushing for ensuring larger credit flow to MSMEs so that they can gain an advantageous position in foreign markets with many enterprises facing closedown threats in the US and the European Union, in the wake of the global slowdown.

Union MSME secretary Dinesh Rai told FE that the ministry has assessed the possibility of a number of IT, textile and auto component manufacturing companies closing down in the US and EU owing to recession. “In such a situation, Indian MSMEs can chip into these markets provided the sector is given proper support,” Rai said.