Banks step up lending to small businesses in organised sector

At a time when India Inc’s appetite for credit has turned tepid, bankers seem to have put their shoulders to the wheel in giving loans to small manufacturing units, including shopkeepers, street vendors, truck and taxi operators, and others under the Pradhan Mantri MUDRA Yojana.

Banks, including State Bank of India and its Associates (six banks), public sector banks (21), private sector banks (13), regional rural banks (56) and foreign banks (2), have stepped on the gas since the Yojana was launched on April 8.

Total disbursals Collectively, these banks disbursed ₹26,129 crore to over four lakh enterprises belonging to the Non-Corporate Small Business Sector (NCSBS) as on October 2, according to MUDRA (Micro Units Development & Refinance Agency) data. MUDRA Ltd is a unit of the Small Industries Development Bank of India (SIDBI).

Though PMMY is a government-promoted scheme, private sector banks have responded enthusiastically to it. Among the top five banks that disbursed loans under the PMMY, three are from the private sector.

Under the Yojana, HDFC Bank has disbursed ₹3,327.48 crore; Canara Bank ₹1,457.4 crore; ICICI Bank ₹1,432.23 crore; IndusInd Bank ₹1,357.28 crore; and State Bank of India ₹1,287.28 crore.

For extending loans (up to ₹10 lakh) to micro-enterprises under the PMMY, banks get refinance from MUDRA. The refinance enhances their liquidity.

Under PMMY, banks give loans under three categories — Shishu (covering loans up to ₹50,000); Kishor (loans above ₹50,000 and up to ₹5 lakh); and Tarun (loans above ₹5 lakh and up to ₹10 lakh).

They have to ensure that at least 60 per cent of the credit flows to Shishu category units and the balance to Kishor and Tarun categories.

The government came up with PMMY as the formal or institutional architecture has not been able to reach out to the NCBS to meet their financial requirements. They are largely self-financed or rely on personal networks or moneylenders.

Main hurdle  The biggest bottleneck to the growth of entrepreneurship in the NCSBS is lack of financial support to this sector. The support from banks to this sector is meagre, with less than 15 per cent of bank credit going to micro, small and medium enterprises (MSMEs), according to MUDRA.

A vast part of the non-corporate sector operates as unregistered enterprises. They do not maintain proper books of accounts and are not formally covered under taxation. Therefore, banks face difficulty in lending to them. Majority of this sector does not access outside sources of finance.

 It is in this backdrop that the government set up MUDRA through a statutory enactment.

The agency’s offerings include providing refinance to commercial banks, non-banking finance companies, regional rural banks, co-operative banks and microfinance institutions that provide loans to the NCBS sector. 

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