Banking Codes and Standards Board of India (BCSBI), an autonomous body set up by RBI, Indian Banks’ Association (IBA) and scheduled commercial banks has called on the banks to desist from insisting collaterals while extending credit to Micro and Small Enterprises (MSEs)
While addressing the Conference on “Facilitating Bank Finance to Micro and Small Enterprises: Implementation of the New Code of Bank’s Commitment to MSEs” organized by PHD Chamber today in New Delhi, Ms K J Udeshi, Chairperson, BCSBI said that adequate credit guarantee extended to banks for MSE lending would cover the risk involved. There are other checks such as publication of list of willful defaulters. “No additional step is required to cover the risk of the credit disbursed to the sector. Insistence on collaterals would defeat the very purpose of the Government to promote the MSE sector, which accounts for major share of the industrial production, exports and employment,” she pointed out. Code of Bank’s commitment to MSEs brought out by BCSBI and IBA on 31st May 2008, is a voluntary one, which sets the minimum standards of banking practices for banks to follow when they are dealing with MSEs.
Mentioning that the Code would give a positive thrust to the MSE sector, Ms Udeshi opined that it would enhance transparency in the banking operations and make the micro and small enterprises customers aware of what they could expect from the banking services. It would help foster confidence in the banking system. The Code provides for making available free of cost a copy of the Code to all bank customers and a standardize loan application forms with a check list indicating all forms that are required to be submitted with the application. It also sets time frame for disposal of credit applications, disbursal of loan sanctioned, working out rehabilitation package for sick units, providing information about interest rates, fees and other charges upfront and endeavor to provide facilities through a single window mechanism and credit counseling services.
Ms Udeshi pointed out that bank credit to MSEs was lagging behind despite several measures announced by the government and the banks to increase it, taking into consideration the credit needs of the sector. The third census of small enterprises undertaken by the Government of India in 2001 had revealed that 95.5 percent of the MSEs were outside the purview of the banking system. This reflects seriously on the financial exclusion of micro and small enterprises from the banking system. Evolution of the Code is primarily meant for mitigating such anomalies, she added. The Code was evolved after several rounds of discussions with interest groups, the government, SEBI, SBI, RBI, IBA and scheduled commercial banks.
Calling for encouraging Grameen Banks to get involved in the credit delivery to the MSEs, Ms Udeshi observed that it should not be left in the exclusive realm of these grassroot financial institutions. The scheduled commercial banks also have an important role in getting themselves focused on meeting the credit needs of MSEs.
Ms Udeshi underscored the need for developing efficient monitoring systems for credit delivery, maintaining continuous interface with the target group and setting up credit counseling centers for making the operation of the Code smooth and result-oriented. She also wanted to have debate on the need for dedicated stock exchanges for the MSE sector and how the IBA directive to banks to adopt the interest rate bond of two per cent above and below their prime lending rates for advances to SSI sector was serving the interest of micro and small enterprises. There is also need for organizing sensitization programs for customers and training orientation to bank staff about the Code and its implementation.
In his welcome remarks Dr. L K Malhotra, President, PHD Chamber expressed serious concern that the share of credit to micro and small enterprises as percent of net bank credit has been going down from 14.2 per cent in 2001 to 8 per cent in 2007. He regretted that the role of banks continues to be highly under exploited for the advancement of entrepreneurial activities in country. A lot remains to be done by the banks to fuel the growth of entrepreneurship and accelerate the development of micro and small enterprises in the country.
Dr. Malhotra emphasized that all efforts need to be made to create wide awareness and understanding of this code in the banking sector and among the micro and small enterprises.
