Karnataka was the only big state which cut loans to small and medium industries — the biggest job creators in the country — by over Rs 800 crore in 2018, at a time when the government and the central bank stepped up efforts to tackle one of the worst crises in MSME sector since demonetisation.

Karnataka's scheduled commercial banks (SCBs) reduced lending to Micro, Small & Medium Enterprises (MSMEs) from Rs 47,820.66 crore in 2017 to Rs 47,001.61 crore in 2018. All other states increased their lending between Rs 1,000 crore and Rs 3,000 crore, the latest RBI data said.

It showed that since 2014, Karnataka has consistently been reducing lending to MSMEs which are the most powerful driver of economic growth and, according to the World Bank, have a multiplier impact on local economies.

Karnataka's loan disbursal by SCBs to MSMEs deteriorated from a high of Rs 56,031.06 crore in 2014-15 to Rs 47,001.61 crore in 2017-18. It was during the same period states like Maharashtra, Gujarat, Kerala and Tamil Nadu increased lending to MSMEs by between 13% and 20%. The newly-created Telangana increased loan disbursals by 32%.

Only Andhra Pradesh and Delhi followed Karnataka in reducing loans to small industries in the four-year period since 2014. But in the past one year, even these two states have increased loans in the wake of crisis faced by small businesses post demonetisation and GST.

As credit crunch increased in MSME sector, hurting small businesses in gems and jewellery, leather, textile, housing and others, the RBI, under its new Governor Shaktikanta Das, decided to permit a one-time restructuring of existing loans not exceeding Rs 25 crore to MSMEs.