The Hindu Business Line : CII seeks Govt initiative to tackle manpower crunch

Chamber says
SDB will be an intermediary between commercial banks and trainees.
Would lend at concessional interest rates.
Would also extend loans to private players who want to set up training institutes.
The initiative would be largely government-funded.

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New Delhi Feb. 11 To tackle the problem of shortage of trained manpower in the country, the Confederation of India Industry has suggested that the Government set up a Skill Development Bank (SDB).

Recognising the lack of financial support coming in the way of acquiring skills, the Chamber suggests the SDB will be a financial intermediary between commercial banks and customers — the potential trainees.

A dedicated SDB would be required since perceived `risks' of lending to this community would come in the way of commercial banks lending to these trainees.

The SDB would also extend loans to private players looking at setting up new institutes or upgrading existing ones.

Lending by commercial banks to the SDB would be taken as part of the banks' priority sector-lending targets, recommends the Chamber.

Addressing risk

In order to reduce the risk of default, the SDB would lend money directly to the training institute where the trainee is inducted.

On completion of the course, the original diploma certificate would be handed over by the institute to SDB, which would hold this as a collateral for the trainee in question, suggests the chamber. After successful completion of the training and subsequently when the trainee joins a company, the certificate would be transferred from the bank to the company directly with an arrangement that the company settle the loan on behalf of the trainee in easy instalments, deducted from the trainee's salary.

Concessional rates

To ensure a rapid take-off of the model and make it affordable as well as lucrative for the trainees, the chamber has suggested a concessional rate of interest of 7 per cent for such loans.

Currently, loans for higher education are available at interest rates in the range of 10.5 per cent to 11.5 per cent.

As regards the funding of the SDB, the chamber said that this initiative would have to be largely Government funded for the time being and therefore, such an institution would have to be created under an Act of Parliament.

The Government funds would be supplemented by commercial banks parking some of their funds with the SDB once skill development is made a part of the priority sector lending target.

The chamber feels that eventually market forces would take over and loans for vocational training would be available from commercial banks.