Chidambaram asks SFCs to enter capital market

Calls for financial autonomy, zero interference by govts.

Union finance minister P Chidambaram today asked the state financial corporations (SFCs) to enter the capital market and operate like financial institutions. He observed that "there is no better judge than the markets".

Addressing at a function organised in connection with the golden jubilee celebrations of the Andhra Pradesh State Financial Corporation (APSFC), he said that SFCs lost their goal along the way because of gross violation of the fundamental principles.

Calling for total financial autonomy and zero interference by the governments besides capital infusion for the revival of SFCs as profit-making entities, Chidambaram said that SFCs must enter the capital markets and face the test.

"Markets will reward good SFCs and punish the bad ones," he said and advised SFCs to behave like any other financial institutions and not to think of themselves as employment exchanges or charitable organisations.

Chidambaram also advised them to introduce new models of lending as well as expand product portfolio and reach. Terming the credit flow as a key driver of economic growth of the country, the minister said that smooth and constant credit flow to agriculture, SHGs and SME in the country was still a long way to go.

He sought to link the overall growth of small and medium sector with the poor institutional credit, which is less than 5 per cent.

"The overall lending as a percentage to GDP in India is only around 33-35 per cent whereas it is between 50 and 75 per cent in the developed countries," he pointed out.

Complementing the APSFC for staging a comeback and making operational profits for the past three years, the finance minister suggested to the SFCs, which are yet to sign the tripartite MoUs with Sidbi, to fall in line to initiate better financial practices.

Chidambaram assured all help in forging APSFC's alliance with its potential partners, the State Bank of Hyderabad and Andhra Bank.

..urges SMEs to go for credit rating

Chidambaram indicated that his ministry was convincing banks and other financial institutions to offer loans at attractive interest rates to small and medium enterprises (SMEs) with good credit rating.

He urged SMEs to obtain and apply for credit rating from SMERA, the new credit rating agency formed by Sidbi and other institutions to take advantage of lower interest rates.

"Make the credit rating and credit information sharing as part of the credit culture," he urged SMEs while disclosing that he would hold a meeting with banks and financial institutions to devise parameters for differential treatment in terms of interest rates on the basis of credit worthiness.

Giving details of the steps taken by the Union government and the RBI to encourage the growth of SMEs, he said that lending to the SME sector is now considered a priority by the Centre.

The government is aiming at providing 25 per cent capital requirement of the SME sector through institutional credit in the next five-year period. The other steps include the creation of Credit Guarantee Fund and SME growth fund.

"If an investment of Rs 1 lakh in the organised sector can create one job, the same in the SME sector can create eight jobs," he said.

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YSR for restoration of SLR bond facility to SFCs

The Andhra Pradesh government has urged the finance minister to restore the facilities of SLR bonds and ad hoc borrowings to profit making state financial corporations like APSFC.

Chief minister Y S Rajasekhara Reddy said that withdrawal of SLR bond quota allocation and ad hoc borrowing facility by the RBI has affected the portfolio enlargement and growth of the state financial corporation.

He said that these measures have drastically restricted the avenues for raising low cost finance at a time when the SFCs needed to provide more loans to the SME sector.

The chief minister also requested Chidambaram to provide matching equity or preferential capital contribution of Rs 50 crore through Sidbi to APSFC. The state government has already announced Rs 50 crore to APSFC as part of capital infusion measures.

On behalf of the APSFC, the chief minister also urged the finance minister to advise Sidbi to provide refinance on working capital term loans being granted by the corporation.

Chidambaram informed the chief minister that the Government of India has forwarded the state government's application for Rs 3,000-crore loan from the World Bank for taking up modernisation of Nagarjunasagar project, officials said.