Concerned over the health of micro, small and medium industries and the poor credit availability to the sector which contributes significantly to the Indian economy, a parliamentary panel has suggested the banks must develop a healthy culture of credit disbursement without collateral to MSMEs.
The Parliamentary Standing Committee on Industry has also suggested the Reserve Bank of India to seriously consider the issue (credit availability to MSME sector) and monitor banks across the country on whether they are adhering to its instructions.
“The paramount concern of the MSME sector is access to credit. The committee regretted that collateral-free loans are not issued to the MSME sector without use of the credit guarantee fund,” it said in the report noting that the proposed SME exchange for mobilising capital for small and medium enterprises will help source funds beyond banks and financial institutions.
The key challenges faced by the sector, which employs 65 million people and responsible for 40 per cent of total industrial production in India are lack of availability of adequate and timely credit, high cost of credit, collateral requirement and limited access to equitable capital and venture capital.
According to a recent RBI directive, collateral-free loans up to Rs 10 lakh should be extended by banks to MSE sector. Greater availability of credit can contribute to the faster modernisation and expansion of these enterprises and the augmentation of their productivity and competitiveness.