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New Delhi, Aug. 10

THE Government on Wednesday unveiled a new policy package aimed at stepping up credit flows to the small and medium sector.

The package has for the first time clearly defined the medium enterprises (ME) as those units with investment in plant and machinery above the small-scale industry limit and up to Rs 10 crore.

The Finance Minister, Mr P. Chidambaram, announced the package in the Rajya Sabha on Wednesday.

SSI units are those with investments in plant and machinery up to Rs 1 crore other than a few specified industries such as pharmaceuticals, textiles and sports goods where the cut-off investment limit stands at Rs 5 crore.

The package also proposes to make a one-time settlement (OTS) scheme for non-performing assets of banks and a corporate debt restructuring (CDR) mechanism for the SME sector on the lines of what is currently in force for the larger companies.

Mr Chidambaram said that public sector banks have been asked to achieve a minimum 20 per cent year-on-year growth for funding small and medium enterprises.

This would lead to a doubling of credit to the sector from Rs 67,600 crore in 2004-05 to Rs 1,35,000 crore by 2009-10, he said.

The Finance Minister added that PSU banks would also be asked to follow a transparent rating system with cost of credit being linked to the credit rating of the enterprise.

He said that the Small Industries Development Bank of India (SIDBI) in association with Credit Information Bureau (India) Ltd (CIBIL) would expedite the setting up of a credit rating agency.

The commercial banks (including regional rural banks) with over 67,000 branches will make concerted efforts to provide credit cover on an average to at least five new tiny, small and medium enterprises at each of their semi-urban/urban branches annually.

"The package is a clear recognition that industrial and manufacturing activity is extremely important and Government places great emphasis on industrial resurgence," the Chief Economic Advisor, Dr Ashok Lahiri, said while explaining the details of the package at a press conference later in the day.

The OTS scheme for small-scale NPA accounts would be applicable to bad debts on the books of the banks as on March 31, 2004. The scheme will be in force up to end of March next year.

"The Reserve Bank of India will issue the guidelines for the one-time settlement scheme," the Additional Secretary, Banking, Ministry of Finance, Mr Vinod Rai, told presspersons.

Mr Rai also clarified that only SSI financing by banks would be considered for priority sector for lending purposes, leaving out loans to the new medium sector.

The Credit Guarantee Fund Trust for Small Industries will be told to reduce the one-time guarantee fee from 2.5 per cent to 1.5 per cent for all loans up to Rs 2 lakh for eligible women entrepreneurs, and eligible borrowers located in the North-East region (including Sikkim) and Jammu and Kashmir.

The existing institutional arrangements for review of credit to SSI sector such as the Standing Advisory Committee in the RBI will be made more rigorous and will also review the flow of credit to SSI and medium enterprises.

The total public sector banks' advances to the SSI sector stood at Rs 58,278 crore as on March 31, 2004.

The extent of NPAs of the SSI sector on this date was around 17 per cent.

(This article was published in the Business Line print edition dated August 11, 2005)
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