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SBI’s directive to associate banks on approval for loans above Rs 10 cr to impact credit to MSMEs

Updated: Sep 19, 2016 08:45:57am
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SBI’s directive to associate banks on approval for loans above Rs 10 cr to impact credit to MSMEs

Mumbai, Sep 19 (KNN) In a move that would make access of credit difficult for the MSME sector, the State Bank of India (SBI) has directed its associate banks that any credit proposal for above Rs 10 crore has to be approved from SBI’s Mumbai office.

According to a report on The Hindu, SBI has sent this as an advisory to all associate banks, including State Bank of Bikaner & Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Patiala and State Bank of Hyderabad.

The move is likely to hit the MSME sector the most as the MSME units, enjoying credit limit of Rs.10 crore and above, either do not have an external credit rating or have managed to get only a rating that is below investment grade.

The entire process would be time consuming too.

Access of credit is already the most difficult job for an MSME due to existing criteria for rating of loans to the MSME sector.

The sector has been consistently pleading to do away with the third party Credit Rating mechanism.

The MSMEs have been pointing out that the benefits of  credit rating schemes have not gone down well to the sector so far because the rating given by the agencies are much inferior to those given by their own lender banks, causing problems for the MSMEs.

A vast majority of MSMEs who went for Credit rating using subsidy did not renew their rating in the following years as they did not see any value.  They have been urging that the amount earmarked for the scheme should be kept in abeyance until a way out is found or it should be utilized under more useful heads of expenditure.

The MSME sector has been consistently raising the issue that because of rising NPAs in banks due to their over exposure in sectors such as consumer loans, infrastructure, mining and telecom, banks are demanding additional collateral securities even from the existing MSME borrowers.

There were many cases reported where third party rating recommended by RBI had been used for pressurizing MSMEs for additional collaterals and reduction in credit exposure on individual exposures falling under the ‘non-investment’ credit rating.

Some experts pointed the fall out of BLR rating mechanism for MSMEs where one is benchmarked with a large industry leader on parameters such as market share and other financial ratios.

Meanwhile, according to another media report, India’s largest public lender SBI recently complained that credit rating agencies do not understand the nuances of MSME businesses, which are different from large corporates.

The report added that following this the Reserve Bank has asked the Indian Banks’ Association (IBA) to review the existing criteria for rating of loans to MSMEs, which are blamed for slower credit off-take to the sector. (KNN Bureau)

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