The Hindu Business Line : SFCs, PSBs urged to work closely for better lending

THE Union Finance Minister, Mr P. Chidambaram, has advised the State Financial Corporations (SFCs) and the public sector banks (PSBs) to forge alliances towards ensuring improved credit lending to the small and medium enterprises (SME) sector.

Observing poor institutional credit flows to the SME sector at present, he said the sector needs increased credit keeping in view their substantial contribution in terms of employment, industrial output and exports.

Addressing a gathering at the golden jubilee celebrations here on Tuesday, the Finance Minister said the Small Industries Development Bank of India (SIDBI) has been working with the PSBs and other banks to lend directly to SMEs. However, he said SIDBI itself has become a stressed institution with flawed working model. Efforts were on to revive the working model of SIDBI to transform it once again into an aggressive refinance bank.

Mr Chidambaram said the SFCs should look at different models of lending. In this connection, he advised them to work with one or two PSBs that have large presence in their State to quickly expand their lending portfolio and improve the quality of lending to SME sector and stimulate overall economic growth.

The Finance Minister, who held discussions on the subject with the Andhra Pradesh Chief Minister, Dr Y.S. Rajasekhara Reddy, and the APSFC Chairman, Mr M. Gopalakrishna, said two PSBs - Andhra Bank and State Bank of Hyderabad (SBH) - were identified for forging alliance with APSFC.

"Andhra Bank, SBH and APSFC can all together substantially increase the portfolio of lending to SME sector in the State," he said.

Strongly favouring fresh capital inflows into SFCs towards their early revival and improved lending to SME sector, the Finance Minister advised the State Governments to pump in funds in the form of additional equity capital.

The Chief Minister said the State Government has already approved a proposal to infuse Rs 50 crore of capital into APSFC. He asked the Union Finance Ministry to arrange for similar sized matching equity contribution from the Centre.

"Since SFCs were created by an Act of Parliament, the Government of India directly or indirectly has the responsibility to improve the viability of SFCs," Dr Reddy said.

Responding favourably to this, Mr Chidambaram said "the request for matching equity grant is taken note of."

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