Reserve Bank seeks increased lending to SME clusters

The Reserve Bank of India (RBI) has directed banks and financial institutions (FIs) to actively promote corporate-linked small and medium enterprises (SME) cluster models.

Financing SMEs linked to large corporates covering suppliers, ancillary units, dealers would enhance competitiveness of the corporates as well as the SME participants, said the RBI.

This directive is in keeping with the central bank's decision to adopt the recommendations of a working group headed by AS Ganguly to facilitate flow of credit to the SSI sector.

A full-service approach to cater to the diverse needs of this sector may be achieved through extending banking services to recognised clusters by adopting a 4-c approach, namely customer focus, cost control, cross sell and contain risk, said the RBI.

In addition to the 60 clusters identified by the ministry of SSI, the RBI has permitted banks to identify new clusters which can help increase credit flow to the SME sector.

The apex bank has asked Sidbi and leading banks should make use of these successful models to encourage adoption of their work practices in other states, by sponsoring specific projects as well as widely publicising the successful working models.

Banks operating in north east have been directed to sanction higher working capital limits to SSIs, based on their commercial judgement due to the peculiar situation of the hilly terrain and frequent floods causing hindrance in the transportation system.

The central bank has also asked banks to explore new instruments to promote rural industry and improve flow of credit to rural artisans, industries and rural entrepreneurs.

Explaining the rationale in seeking new instruments to lend to rural industry, RBI said growth of this sector was the key to significant growth in GDP as well as in creating employment over time.

While traditional means of financing rural sector has been on the decline, the banks have not been able to penetrate rural areas adequately.