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Banks cautious on SME lending

india Updated: Oct 10, 2008 21:40 IST
Mahua Venkatesh
Mahua Venkatesh
Hindustan Times
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With the global financial crisis spreading its wings across the globe, the Indian banking industry has quietly adopted a cautious lending policy, particularly towards the small and medium enterprises (SME), which typically have lower credit ratings. A host of SMEs have been denied capital by public, private sector and even foreign banks. Though the finance ministry has underlined that there is no crisis in the Indian market, the issue of liquidity crunch needs to be addressed, banking industry insiders said.

VK Agarwal, director,of Rs 50 crore Shashi Cables told HT that flexibility to do business is fast disappearing as financing from the banking industry is becoming tougher. “More than the liquidity problem, banks are opting to take careful steps when it comes to lending, especially the SME sector,” he said, adding that he was refused capital by banks like the State Bank of India, ICICI Bank and HSBC.

Naveen Jain, who owns Dayachand Engineering Industries Pvt Ltd with a turnover of less than Rs 10 crore, echoed the same sentiment stating that he was refused capital by Punjab National Bank.

When contacted a senior official at PNB however said that there is no such move to curb financing to the SME sector. "In case there have been instances, we are willing to look into the matter and sort it out," the official said. ICICI Bank officials were not available for comments.

The SME sector requires financing of about Rs 2 lakh crore annually and it accounts for 27.2% of the GDP. This sector needs special attention especially to make financial inclusion a reality. Anil Bhardwaj, secretary general, Federation of Indian Small and Medium Enterprises said that the SME sector was facing a severe shortage of funds to carry out the day to day activities with banks taking a cautious approach.

However, government officials said that all banks have been directed not to choke credit.