Banks should evolve mechanism to detect sickness in MSME sector at the earliest stage

Ludhiana: MSME sector is contributing hugely to the economy of the country. It is generating more than 08 crore jobs, accounting for 45% of the manufacturing sector & also contributing about 08% to G.D.P. Unfortunately this vulnerable sector has very limited access to bank credit. This sector is squeezed by other regulation and technological backwardness.   
Independent studies claim that three-fourth of 3.6 crore MSME in the country do not have access to banks or institutional finance making their businesses more vulnerable in time of economic slowdown as prevailing now.
Inter ministerial penal in its report in September last year made over 60 recommendations to help this sector in the issues of regulation finance, infrastructure, technology and labour laws reforms among others .
The committee has urged the Reserve Bank of India to direct banks to reduced lending rates for this sector from about 17-18% to 13%. In the mean time minister for MSME has held talks with banks seeking their help to meet the target of setting up additional five lakh enterprises under the Prime Minister Employment Generation scheme to create 40 lakh jobs during the 12th five year plan.
Due to squeezed credit at higher rates the sickness in MSME sector is rising sharply. The number of sick MSME’s in March, 2013 increased to 248890 from 88635 in March, 2012. This was reveled in the Lok Sabha.
Banks usually ensure adequate collateral security against their lending to MSME’s. It is therefore quite illogical to include risk weightage in the rate charged from this sector. By having satisfactory collateral back up MSME units do not pose any risk to banks.
Apart from high rates banks are also charging processing fees for everything the bank does. Fortunately only entry into the bank is free.
Banks should evolve mechanism to detect sickness in MSME sector at the earliest stage and try to rehabilitate ailing units.   
There is cap of 40 lending in the priority sector. Earlier priority sector included mainly small industrial units, agriculture and lending to poor sections of society. Know it include additionally home loan, vehicles loan, medium sector of Industry & other miscellaneous lending. However government ensures that agriculture gets at least 80% of the share in this 40% category. This means bulk of the smaller units remain outside bank lending. Government should ensure that at least MSME sector gets 20% share in this priority sector. This is all the more important that export credit is also likely to be including in this priority sector.

(The Ludhiana-based Author is President of Apex Chamber of Commerce and Industry, Punjab.)