There is a very strong case for banks to look at the MSME sector: SS Mudra

Mumbai, July 12 (KNN) The Reserve Bank of India (RBI) Deputy Governor S S Mundra has stressed upon the need for the lenders to focus on small loans to small enterprises in the absence of big-ticket loans.

“If you look at the credit scenario in the banking industry in the past few years, the slowing down of credit growth that the banking industry has faced in the large industrial sector, and if you put all that together, there is a very strong case for banks to look at the MSME (micro, small and medium enterprises) sector,” Mundra said at the launch of certified credit counsellors programme by Small Industries Bank of India (SIDBI) for the MSME sector. 

"There are strong arguments and logical reasons for the banking industry to look at the MSME sector as a potential business area because, in the large industrial credit, there are certain problems,” he said, adding that banks cannot just depend on retail loans. 

Consumer loans can be meaningful if people taking such loans are engaged in productive activity and are able to generate income to repay. “Consumer loans by nature don't generate any cash flows, or surplus.”

Mundra said in the past few years, major initiatives have been taken by the RBI, Government and the banking industry to support the MSME sector.

There are about 48 million MSME entities in the country. They provide employment to 110 million people and contribute nearly 45 per cent of the manufacturing output and around 40 per cent of the nation’s exports. However, globally, only about 30 per cent of MSMEs survive beyond 10 years. Most fail because of constrains in getting finance, the deputy governor added.

Seeking to address concerns on mortality, Mundra said only 30 per cent of the small businesses survive beyond the first decade of its formation, and over 80 per cent of those which are unable to make it are due to financial troubles.

Despite the steps taken for the sector, a large number of MSMEs continue to be outside the formal financial sector and depend on friends, relatives or the private money lenders for their financial needs.

“There is a huge constituency which is there where there is a huge unmet demand, there is large sector of suppliers and lot of focus and initiatives,” he said.

Mundra said there is a lack of communication, and there is a gap where existing demand and supply is unable to meet in a meaningful way which illustrates the need to “build bridges”.

“That is the whole concept and thought in the Institution of certified credit counsellor,” he said, while speaking at the launch of a Sidbi programme for certified credit counsellors (CCC).

The Deepak Mohanty committee constituted by the RBI had recommended the counsellors as “a system of professional credit intermediaries/advisors for MSMEs, which could help bridge the information gap and thereby help banks to make better credit decisions”.

These intermediaries could function in a transparent manner for a fee and be regulated by the Reserve Bank, the committee had said.

The CCCs are expected to help MSME promoters in preparing business proposals, financial documents and financial statements, advise on suitable credit instruments available in the market and support with non–financial or semi-financial business decisions like business expansion plans.