Credit
Flow
Credit is the prime input for sustained growth of small scale
sector and its availability continues to be a matter of concern. Credit
provided for creation of fixed assets like land, building, plant and
machinery is called long term credit. Credit provided for running the
industry for its day to day requirement for purchasing raw material and
other inputs like electricity and water etc. and for payment of wages
and salaries is called short term credit or working capital.
Institutional
Arrangement
Small Scale Industrial Sector is provided working capital by commercial
banks and in some cases by cooperative banks and regional rural banks.
Term loans are provided by State Financial Corporations (SFCs), Small
Industries Development Corporations (SIDCs), National Small Industries
Corporation (NSIC) and National Bank for Agriculture and Rural
Development (NABARD). Financial assistance from NSIC and to some extent
from SIDCs is available in the form of supply of machinery on hire
purchase basis/deferred payment basis. Small sized SSI and tiny units
also get some term loans from commercial banks alongwith working capital
in the form of composite loans.
Refinance to these institutions is provided by the Small Industries
Development Bank of India (SIDBI). Such refinance comprises assistance
provided to State Financial Corporation Bills, Finance Scheme, Special
Capital/Seed Capital Scheme, new debt instruments and to National Small
Industries Corporation. Long term loan are provided to the smalls scale
industrial units by SFCs mainly through Single Window Scheme and
National Equity Fund as also direct assistance provided to State
Financial Corporations in the form of refinance. Some part of working
capital for pre-operative expenses is also provided by State Financial
Corporations to Small Scale Industrial Units under the Single Window
Scheme.
Credit to SSI
Sector from Public Sector Banks
The table below gives the positions with regard to flow of credit to
SSI Sector:-
The advances outstanding against Tiny
sector increased from Rs.9515 crores at the end of March, 1997 to Rs.
10273 crores at the end of March, 1998. The share of tiny sector in the
advances to SSI sector has, however, decreased from 30.2% at the end of
March 1997 to 27.0% at the end of March, 1998. As per RBI guidelines,
40% priority sector lending going to SSI has to go to tiny units with
investment in plant and machinery below Rs. 5 lakhs and another 20% to
tiny units with investment in plant and machinery between Rs. 5 lakhs
and Rs. 25 lakhs. Thus, against the target of 60% of SSI credit for tiny
units, actual flow at 27% is very low.
Nayak
Committee
Nayak Committee was set up by the Reserve Bank of India in December.
Nayak Committee, RBI issued a number of circulars advising the banks to
grant working capital to the extent of 20% of the projected annual
turnover, timely disposal of loan applications and setting up of
specialized bank branches for SSI loaning in areas of higher SSI
concentration.
As a follow up of Nayak Committee recommendations, Finance Minister in
the Budget speech of 1995-96, announced a Seven Point Action Plan for
improving the flow of credit to small scale sector consisting of the
following:
i) Time bound action for setting up specialized SSI branches in 85
identified districts; at least 100 such dedicated branches to be opened
before the need of 1995-96.
ii) Adequate delegation of powers at the branch and regional levels.
iii) Banks to conduct sample surveys of their performing SI accounts to
find out whether they are getting adequate credit.
iv) Steps to be taken to see as far as possible that composite loans
(covering both term loans and working capital) are sanctioned to SSI
entrepreneurs.
v) Regular meetings by banks at zonal and regional levels with SSI
entrepreneurs.
vi) Need to sensitize bank mangers and reorient them regarding working
of the SSI sector. vii) Simplification of procedural formalities by
banks for SSI entrepreneurs.
Steps taken by
Reserve Bank of India to improve credit flow to SSI sector
a) The Government had raised the investment limit for SSIs from Rs.60
lakhs to Rs.300 lakhs and for tiny units from Rs.5 lakhs to Rs.25 lakhs.
In order to ensure that credit is available to all segments of tiny
sector. RBI has issued instructions that out of the funds normally
available to SSI sector, 40% be given to units with investment in plant
and machinery up to Rs. 5 lakhs; 20% for units with investment between
Rs. 5 lakhs to Rs.25 lakhs and remaining 40% for other units.
b) Public sector banks have been advised to operationalise more
specialised SSI branches at centres where there is a potential for
financing many SSI borrowers. As on March 1998, 370 specialised SSI
branches are working in the country.
c) To extend 'Single Window Scheme' of SIDBI to all districts to meet
the financial requirements (both term loan & working capital) of
SSIs.
d) With a view to moderating the cost of credit to SSI units, banks are
advised to accord SSI units with a good track record the benefits of
lower spread over the Prime Lending Rate.
e) In order to take expeditious decision on credit proposals of SSI
units, banks have been advised to delegate enhanced powers to the branch
managers of the specialised SSI branch so that most of the credit
proposals are decided at the branch level.
Monitoring
Credit to SSIs is monitored periodically by Reserve Bank of India,
Department of SSI & ARI, National Advisory Committee of SIDBI, State
Level Bankers Committee and District Level Coordination Committees of
the Bank.
Fresh
initiatives announced in the Budget of 1999-2000
In this budget speech the Finance Minister has announced the following
measures for improving credit supply to SSI sector
a) A new credit insurance scheme launched.
Inability to provide adequate security to banks and low recovery are
often sighted as major constraint in flow of investment credit of SSI
units. The problem is more acute for export oriented and tiny sector
enterprises. To alleviate this problem, the Finance Minister announced
that a new credit insurance scheme will be launched.
b) Composite Loan Scheme Limit Enhanced to Rs. 5 Lakhs
The composite loan scheme of SIDBI and commercial banks is designed to
case operational difficulties of the small borrowers by presiding term
loan and working capital through a single window. The limit for
composite loans currently at Rs. 2 lakhs has been enhanced to Rs. 5
lakhs.
c) Working Capital Limit Enhanced to Rs. 5 Crores
For SSI units the working capital limit is determined by the banks on
the basis of simple calculation of 20% of their annual turnover. The
turnover limit for this purpose has been enhanced from Rs. 4 Crore to
Rs. 5 Crore.
d) Credit Delivery to Tiny Sector
To increase the outreach of banks to the tiny sector, leading by banks
to Non-Banking Financial Companies (NBFCs) or other financial
intermediaries for purposes of on-lending to the tiny sector is being
included within the definition of priority sector for bank lending.
High level
committee for credit (Kapur committee)
In December, 1997, Reserve Bank of India has appointed a One-Man
Committee under the Chairmanship of Shri S.L. Kapur, former Secretary
(SSI), Government of India, to suggest measures for improving the
delivery system and simplification of procedures for credit to small
scale industrial sector. The Committee has submitted its report to RBI
on 30th June, 1998. Some of the major recommendations of the Committee
are:-
i) Special treatment to smaller among small industries;
ii) Enhancement in the quantum of composite loans;
iii) Removal of procedural difficulties in the path of SSI advances;
iv) Sorting out issues relating to mortgages of land including removal
of stamp duty and permitting equitable mortgages;
v) Allowing access to low-cost funds to Small Industries Development
Bank of India (SIDBI) for refinancing SSI loans
vi) Non-obtaining of collaterals for loans up to Rs.2 lakhs;
vii) Setting up of a collateral reserve fund to provide support to
first party guarantees;
viii) Setting up of a Small Industries Infrastructure Development Fund
for developing industrial areas in/around metropolitan and urban areas;
ix) Change in the definition of sick SSI units;
x) Giving statutory powers to State Level Inter-Institutional (SLIIC);
xi) Setting up of a separate guarantee organisation and opening of
1,000 additional specialised branches; and
xii) Enhancement of SIDBI's role and status to match with that of
National Bank for Agriculture and Rural Development (NABARD).
Kapur Committee has made 126 recommendations out of which RBI has
already accepted 40 recommendations for implementation.
Amendment
of interest on delayed payment act
To tackle the problem of settlement of dues of SSI units by large
companies. Interest on Delayed Payment Act has been amended. The
following amendments ahve been made in the Act.
a) The payment has to be made within 120 days to the SSI supplier from
the date of acceptance of the goods by the buyer.
b) Interest on delayed payment has been revised from 5% above the floor
rate to one and half time the prime lending rate charged by SBI.
c) Mechanism has been prescribed for settling disputes by Industry
Facilitation Councils to be set up by State Governments through
notification.
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