Mundra asks lenders to focus on MSMEs

Mundra asks lenders to focus on MSMEs

Mundra asks lenders to focus on MSMEs

Amid slowing credit growth and stress with large borrowers, Reserve Bank Deputy Governor S S Mundra on Tuesday urged lenders to look at small businesses as a potential area of growth and not as part of compliance.

“There is a very strong case for the banks to look at the MSME sector. They should not look at the sector as a matter of any compliance of government policy, as a matter of charity and as a matter of meeting some target,” he said speaking at a SIDBI event here.

The commercial banker-turned-central banker added there is a “strong argument and logical reasons” for looking at the micro, small and medium enterprises for growth because of “certain problems” with the large industries, which are one of the biggest loan defaulters. Mundra also expressed concerns over the higher propensity among lenders to focus on the resilient retail loans as a way out of the current difficulty of slowdown in demand from large corporations, saying “there is a limit” to which it can be of help.

“There is a limit to which the entire banking industry could remain focus on individual loans or consumer loans. Consumer loans can be meaningful if the people who are availing those loans are engaged in productive activity and they are able to generate income which can be used to repay those loans,” he said.

The policymakers have been asking banks to do more for the small businesses through mandates like making it a part of the priority sector lending requirements. Credit growth slid to a multi-decade low of 5% for FY17 and is yet to pick up. Mundra said in the past few years, major initiatives have been taken by the RBI, government and the banking industry to support the MSME sector.

He said there are an estimated 48 million MSMEs in the country which provide employment to 11 crore people, and contribute nearly 45% of manufacturing output and around 40% to India’s exports.

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