The Hindu Business Line : Banks must hike lending to SME, agri sectors: PM

The Prime Minister, Dr Manmohan Singh, and the Finance Minister, Mr P. Chidambaram, at the inauguration of SBI's bicentennial celebrations in Mumbai on Saturday. — Shashi Ashiwal

Mumbai , June 4

BANKS should expand their credit portfolio to increase lending to small and medium industries, said the Prime Minister, Dr Manmohan Singh.

Addressing a function to mark the bicentennial celebrations of State Bank of India on Saturday, Dr Singh said, with the gradual disappearance of development banks in their original forms, there is shortage of credit to the SMEs and the agriculture sector.

Long-term finance is not available to the SME sector. Therefore, the country needs an active debt market to satisfy the long-term capital requirements of large and medium industries. Banks should increase provision of long-term finance to small-scale industries, said Dr Singh.

"Banks achieved higher growth in the provision of credit to agriculture and allied activities last year and the momentum must be carried further," he said.

The changes in the economy that Dr Singh listed include a rapidly expanding service sector, which is 50 per cent of our GDP; increasing provision to the external sector, which is 25 per cent of the GDP, and need for heavy investment in physical infrastructure as the economy has moved to a higher growth tract.

But still, since the bulk of our population depends on agriculture and allied sectors, sectoral deployment of credit must keep pace with the changes, he said.

Along with providing credit to the farm sector, rural branches of banks must also extend support to input suppliers. Rural branches of commercial banks may also need restructuring so that credit can be supplemented with counselling.

There is a need to focus on the organisational effectiveness of banks. Corporate planning and organisational restructuring of banks is required. There is also a need for a properly designed incentive system to encourage productivity. Public sector banks require greater autonomy in management of staff and determining their organisational structure, said Dr Singh.

The PM said retail, particularly home and auto finance, are fast growing areas. We are ahead of China in robustness and soundness of our banking system, he added.

On how the banking industry will be in the future, Dr Singh said innovation and customer services would be the key drivers of success. Though there is no model for consolidation, the banking system must consolidate itself.

On the role of State Bank of India, Dr Singh said it should take the lead in financing infrastructure development through innovative products and better risk management capabilities. The bank should also spearhead the widening and deepening of the market for rural credit and meet the needs of small and marginal farmers.

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