Public sector banks may miss micro credit target

With just over a month for the closure of the current financial year, public sector banks may fail to meet the 50 per cent loan target to the micro sector of lending under the micro and small enterprise category (MSE), the first phase set by a task force under the chairmanship of the Principal Secretary to the Prime Minister.

The fate of the micro sector does not seem to have improved despite bringing it under the direct purview of the Principal Secretary a year ago.

To ensure that flower vendors or kirana stores get loans at reasonable interest rate from banks, the task force said loans to micro enterprise must form 50 per cent of the lending given under the MSE category by March 31, 2011.

The total outstanding credit given by all scheduled commercial banks (SCBs) to the (micro, small enterprise) MSE sector was Rs 2,56,128 crore in 2008-09 constituting 11.4 per cent of the Adjusted Net Bank Credit. Credit flow to MSMEs had, therefore, doubled from Rs 1,27,000 crore in 2006-07 to Rs 2,57,000 crore in 2008-09.

Public sector banks' chiefs that Business Line contacted declined to comment on the difficulties in lending to micro enterprises.

An investment of Rs 25 lakh in plant and machinery in the manufacturing sector and investment of Rs 10 lakh in the service sector would qualify as a micro enterprise.

To provide these loans, collateral is not the issue, as the Reserve Bank of India in its guidelines dated May 2010 mandated public sector banks to enhance collateral-free loans to Rs 10 lakh from Rs 5 lakh earlier.

Mr S.K Mishra, General Manager, Indian Overseas Bank, said the bank has achieved about 38 per cent of the target but it would be tough to add the remaining 12 per cent by March-end. “In terms of the number of accounts, we would have achieved but not in terms of value,” he said.

Reasons

Bankers say they find it difficult to ascertain the limit of investment in plant and machinery of manufacturing as micro enterprises do not account financial details diligently.

Another senior bank manager said that the documentation work will be the same be it a small value loan or a big ticket. Therefore, branch managers find it easier to lend to big borrowers than to small ticket ones as it is cumbersome and laborious, he said.

The key reason, according to sources, most micro enterprises find it more easier to approach local lenders than banks although interest rates are higher. On optimistic estimates, it believed that the public sector banks would be able to achieve 35 per cent lending to micro segment.

A Chairman and Managing Director of a public sector bank on condition of anonymity told Business Line the recommendation was just a roadmap to ensure credit flow to micro enterprises and therefore missing the target for the fiscal would not call for penalisation.

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