Getting bank loans difficult: SSIs

Bank financing does not cater to the entire funding requirements of the small scale industry sector and is supplemented by promoters' own contributions and loans from financial corporations, according to survey done by the Federation of Indian Chambers of Commerce and Industry (Ficci).

Of the 229 SSI respondents, 59 per cent said it was moderately difficult to obtain funds from banks, while 20 per cent said it was extremely difficult. Around 21 per cent of the respondents said procuring funds from banks was not difficult.

The survey shows that there has been an improvement in the availability of working capital finance from banks to the SSIs.

Forty-two per cent of the respondents said they were obtaining 10-20 per cent of their projected annual turnover as working capital loans. Five years ago, 35 per cent were getting 10-20 per cent of their turnover as loans.

However, despite the improvement, nearly a third of the respondents are getting less than 10 per cent of their annual turnover as working capital loans.

On the interest rate front, 51 per cent of the respondents said they were paying interest in the range of 12-14 per cent on working capital loans, while 12 per cent were paying around 14-16 per cent.

About 47 per cent said they were paying 14-16 per cent interest cent and 17 per cent were paying 12-14 per cent interest five years back.

However, while the interest rate has come down, some of the banks have increased the frequency of compounding interest from quarterly to monthly, which increases the financial burden and negates the benefits of reduced interest rates.

Also, half of the respondents complained of lack of transparency saying bank authorities did not provide reasons in case they refused loans. Around 70 per cent complained of inadequate publicity of various schemes related to SSIs.

SSIs are plagued with problems like delay in loan sanctions and realisation of cheques, inadequate discretionary power with the bank manager, absence of collateral security norms and low composite loan limit, which is Rs 25 lakh at present. Also, most banks do not have forex facilities, which is a hindrance for SSI exporters.

The survey suggested that decision on loan applications should be taken within four weeks, information of credit appraisal should be discussed with applicants and devolution of greater authority to branch managers.

The raising of composite loan and collateral free loan limits were the other suggestions. The survey also said banks should revert to quarterly compounding of interest rates.