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SSI units are entitled for priority sector lending from the nationalised commercial banks on the pattern of agriculture. Out of 40 percent of bank advances earmarked as priority sector lending about 15 to 17 percent have been flowing to SSI sector. Out of priority sector credit going to small scale sector 40% is earmarked for tiny units having investment in plant and machinery below Rs. 5 lakhs and another 20% for tiny units whose investment in plant and machinery ranges between Rs. 5 lakhs to Rs. 2 lakhs are governed by Prime Lending Rate and the commercial credit worthiness of the unit.

Initiative for Credit

In order to ensure adequate and timely credit to the SSIs, Reserve Bank of India had set up Nayak Committee in 1991. The Committee submitted its report in 1992 which recommended, inter alia, that commercial banks may provide working capital to SSI units worked out at the rate of 20% of their annual turn-over subject to a limit of Rs. 1 crore. The limit of working capital has since been raised to Rs. 5 crores.

Up to March 1999, 386 specialised SSI banks branches all over the country have been operationalised with a view to provide focussed attention and increase the flow of credit to SSI sector. Banks have been further advised to increase the number of SSI branches. 370 specialised SSI branches opened up in 1997-98 and 16 more branches have been opened during 1998-99.

The composite loan scheme of SIDBI has been modified and ceiling limit increased from Rs. 2 lakhs to Rs. 5 lakhs. This would facilitate easier availability of credit to the tiny sector.

In the credit policy measures announced for second half of 1997- 98, it had been stipulated that with a view to ensuring prompt settlement of dues of SSI units, as also encouraging bills culture, banks were advised to ensure that with effect from January 1, 1998 of the total in land credit purchase of borrowers, not less that 25% should be through bills drawn on them by concerned sellers.

SSI Units are often handicapped by delays in the settlement of their dues from large companies. To tackle this problem, RBI is being asked to strengthen the existing mechanisms available to SSI for discounting of bills. RBI will also modify its guidelines to commercial banks on credit appraisal to give greater weight to the amount of overdue outstandings that large units have in respect of SSI supplier.

RBI had appointed a one man Committee under the Chairmanship of former Secretary, Department of Small Scale Industries and Agro and Rural Industries, Government of India, to look into various problems regarding credit flow to SSI sector and suggest appropriate measures for their redressal. The Committee has submitted its report to RBI on June 30 1998. The Committee has made as many as 126 recommendations covering various aspects relating to the SSI sector. These recommendations are being examined by RBI. RBI has decided to accept 40 recommendations.