The small and medium sector, hit by the global meltdown, may get a breather from the banking industry. The Indian Banks' Association and the Reserve Bank of India are looking at a proposal allowing easier restructuring of their non-performing assets by giving them a longer timeframe for repayment of debt.
In addition, a high-level committee is also likely to be set up by the government to assess the situation and come up with guidelines to boost the sector, which generates large-scale employment.
The committee is expected to look into the problems that have arisen post the slowdown and liquidity crunch, which have led banks to tighten their lending activities. The committee is expected to act as a link between various ministries including finance and commerce.
In a recent meeting with Prime Minister Manmohan Singh, small and medium enterprises representatives pointed out that banks have shown a reluctance in lending to the SMEs, which typically have low credit ratings.
According to official data, most banks have shown a deceleration in SME advances during the first six months of the current fiscal. In the April to September, state-run banks like the Central Bank of India and the State Bank of Bikaner and Jaipur have actually shown negative growth in SME advances.
Anil Bhardwaj, secretary general, Federation of Indian Micro and Small & Medium Enterprises (Fisme) said that a large number of these small enterprises is facing closure due to the global and domestic situation.
Fisme, in a note to the Prime Minister, has pointed out that slowdown has resulted in repayment defaults by these enterprises.
Export demand has also dropped significantly with recession hitting the US and Europe.