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Banks Need a Pragmatic Approach; Credit is the Base of all Challenges for SMEs: Varma

SME WORLD Bureau
Oct 2010

Uday Kumar Varma who has recently taken over as Secretary in the Ministry of MSMEs said lack of information, credit crunch, unorganized set up are some the problems that prominently face the Indian MSMEs sector in India. “You need to have inputs like credit availability in the market at reasonable costs; appropriate and updated technology; market demand to get going strongly,” says Varma.

Varma shared his views with SME WORLD in an interview on the state of the MSMEs sector in India and his ministry's initiatives.

Terming the credit as the base of all challenges, Varma is of the opinion that “there is a need to develop a mechanism wherein the right market is created for the quality products. You need to have a system in which people may know the quality of your products to create demand for these products in the market. These are some of the common challenges the SMEs are facing and the Ministry has to take initiative in this regard.”

Varma is of the view that banks have to adopt a different strategy for SMEs' funding as certain lines must be drawn between funding the large corporate and the small entrepreneur.

“My own analysis in terms of Non-Performing Assets (NPA) of an SMEs do not figure significantly in comparison to the NPA of a large industry. The absolute value of NPA in small sector is quite insignificant and which lose their motives substantially in due course of time.

Inbuilt Disincentives

“I suspect the administrative work involved in sanctioning the loans to SMEs is so much high that there are inbuilt disincentives for the bank managers to go enthusiastically to sanction loans. I don't think banks per se are resistant to give credit to small entrepreneurs but things become difficult for them when they find the same efforts going into funding a large corporate and the small unit. We need to look at this from a different perspective. When the banks prepare the credit schemes for the SMEs, they need to adopt a unique kind of parameter to judge the performance of the SMEs to sanction the loan.”

Varma says, “RBI has given clear instructions that 60 per cent of the total lending to the MSMEs sector should go to the priority sector i.e. MSEs. But we don't have any specific percentage of what must go for the micro sector.”

Terming the collateral free loans schemes as a very important input for the growth of the sector, Varma says, “We actually need to change the credit cycle of the banks because when banks lend, they think on the recovery part prominently. We need to really look at Credit Guarantee Scheme positively.”

Varma very strongly feels the need to develop a very viable information system wherein initiatives of the government in formulating and implementing various schemes for the growth of MSMEs are properly disseminated. “A tangible channel has to be developed to make various initiatives of the government popular and the channel must have participation of industrial bodies as stakeholders.

“The best propagator of any government scheme is its beneficiary itself because he has had undergone experiences. He could, in fact, speak very well of it and even ill of it.”

Skill Development in India

Skill development is another area of concern today. Industry experts often say that there is a huge gap between the industry requirement and the quality of training being provided to professionals today. Employment has grown with the growth of economy but at the same time unemployment has also grown. This phenomenon raises many questions in front of the policy makers. Questions like why is unemployment graph not coming down and why most of MSMEs are facing skilled manpower crunch need to be addressed urgently are.

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1 Comments >>

Mccade

06 Aug 2011 (12:14:41)

It's like you're on a missoin to save me time and money!

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