RBI demands legal backing to solve MSME credit issue

The Reserve Bank of India (RBI) on Thursday sought a legal backing to its efforts to solve MSME credit issue, putting the ball in Centre's court which has been arguing that loans were not available to small businesses because RBI's interest rates were higher.

The central bank expressed concern over low lending by banks to MSME sector where the loan ticket size is between Rs 10 lakh and Rs 1 crore saying banks' lack of interest to give a loan to MSMEs was the sole reason they approach money lenders and pay high interest.

“Credit penetration is particularly low for MSME sector,” RBI said, releasing excerpts of deputy Governor Viral Acharya's lecture at IIT Bombay.

“In an emerging economy like India, it is always felt that the smaller entrepreneurs, mostly operating under the informal economy, do not get enough credit as they are informationally opaque to their lenders who prefer to provide loans to more transparent larger businesses,” Acharya said.

It was in this context, he said, RBI had initiated work on PCR to solve issues affecting access to credit for micro-entrepreneurs.

The PCR has been envisaged as a database of core credit information – an infrastructure on which users of credit data can build further analytics.

It facilitates linkages with related ancillary information systems outside the banking system including corporate filings, tax systems (including the Goods and Services Network or GSTN), and utility payments.

“The PCR will have to be backed and governed by a comprehensive Public Credit Registry Act to be brought in consultation with the government. It will have to follow the latest privacy guidelines based on a laid down consent framework,” he said.