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CASE STUDY - S M E s l i k e l y t o%e t 6 o f n e t b a n k c r
e d i t
BY Group 05
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Priority Sector LendingPriority Sector Lending,Percentage to be
lent to certain sectors which
in RBI's perception would not have had access to organized
lending market or could
not afford to pay the interest at the commercial rate
CategoriesAgriculture
Small Enterprise Retail Trade
Micro Credit&Education Housing Loans
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NSIC Rating FeeNSIC Rating FeeTurnover ee to be reimbursed
by
inis try of MSME
.Up to Rs 50 lacs %75 of the fee charged by the rating agency
subject to a
. , /-ceiling of Rs 25 000
.Above Rs 50 lacs to.Rs 200 lacs
%75 of the fee charged by the rating agency subject to a
. , /-ceiling of Rs 30 000
.Above Rs 200 lacs %75 of the fee charged by the rating agency
subject to a. , /-ceiling of Rs 40 000
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ChallengesChallenges Inadequate access to finance
Face fragmented markets
-Lack easy access to inter state and international markets
Lack of awareness of global best practices
SMEs face considerable delays in the/settlement of dues
payment
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Reserve BankReserve Bank
GuidelinesGuidelines
Every Bank is required to set up its own policies for providing
monetary assistance to the SME
Banks should start taking important steps for rationalizing the
cost of loans granted to the SME.sector They should adopt a
transparent rating system
All banks including regional and rural banks are required to
take up concrete steps for providing
credit facilities to an average of at least 5 MSME's
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Reserve Bank has issued a notification to all banks for
detailing out their procedures of disposition of loan
applications of MSME's
Reserve Bank has made special arrangements in institution for
analyzing credit requirements of such units
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Common GuidelinesCommon Guidelines
Disposal of Applications
Collaterals
Composite loan
/Specialized SSI SME branches
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FocusFocus,Priority sectors like agriculture education
, % health and also MSME get 40 of a year s %total bank lending
agriculture being 18
MSMEs employ 42 million people and contribute% %9 of country s
GDP and 40 of exports
% , -If 12 proposal MSMEs could have some relief%NCEUS has
suggested a breakup of 5 for
, %small enterprises 3 for medium enterprises and the rest for
micro firms
%The ministry concerned also recommended a 15 target for lending
to MSMEs
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,These talks between RBI the finance minister and the.MSME
ministry remained uncertain
,Treating MSMEs at par with the farm sector the commission has
also recommended bringing down of the% %interest rates on loans to
7 from more than 13 at
present
, ,Under Basel II norms the reserve which banks keep need to be
high in case they lend to unrated organizations
,The RBI should revise the definition of NPAs to permit-any
defaults up to 180 270 days by way of overdue
payments should not be treated as NPAs
The reliance on outside rating agencies is not,sufficient
internal rating of the borrower needs to be undertaken
The present system of credit rating needs to be revised,in order
to meet the interests of banks borrowers and
investors
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Credit RatingCredit Rating
Salient Features
Benefits to SMEs
Benefits to Banks
Industry perception
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Recent issuesRecent issues MSMEs should be provided with
enhanced working
,capital support from the banks by way of enhancement of cash
credit limits and overdraft
, ,facilities by atleast 15 percent in eachcategory
Consider higher working capital ratios with reduced margins from
the industry
RBI should revise the definition of NPAs for MSME
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Government could urgently come out with
possibility to offer differential rate of interest for MSMEs
Banks could be encouraged to provide working capital term loans
for a period
-of 12 18 months to enable the Industry to go through this
transition period
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Thank you !!Thank you !!
