Indian Banks told to be sensitive to needs of MSMEs
Lending to micro, small and medium enterprises (MSMEs) is backed by a strong business case, according to Reserve Bank of India (RBI) Deputy Governor S. S. Mundra.
He was addressing a gathering of bankers at the College of Agricultural Banking, Pune, on Friday while launching a national RBI-sponsored programme to upskill banking officials who deal with MSMEs, the National Mission for Capacity Building of Bankers for Financing MSME Sector (NAMCABS).
MSMEs are crucial to the country's economy, contributing some 45 per cent of manufacturing output, 40 per cent of exports and almost 8 per cent of GDP. The sector consists of just 47 million enterprises and employs about 106 million people.
Mr. Mundra urged bankers to be sensitive to the lifecycle needs of MSMEs and develop innovative products to suit these clients' unique seasonal working capital and capital expenditure requirements. The government and RBI were already nurturing the sector by rehabilitating sick MSMEs and through the Trade Receivables Discounting System (TReDS), a system to help MSMEs convert their trade receivables, or goods delivered but not paid for into cash, according to Mr. Mundra.
"A paradigm shift in financing of Micro, Small and Medium Enterprises (MSMEs) will also happen as and when new small finance banks are licensed. These will make the financing of MSMEs more competitive in the coming days. Banks will be able to face this competition only if they are more sensitive to the needs of the small entrepreneurs," Mr. Mundra said. The seminar was attended by representatives of 31 public, private and foreign banks. According to the RBI, some 3 lakh personnel have joined the banking system in the last six years and it is likely that they have very limited exposure to MSMEs.