Addressing a conference, RBI Deputy Governor Usha Thorat said that many banks are not following the norms on collateral security while lending to small and micro enterprises. Though guidelines exempt banks from taking any form of collateral for group loans up to Rs 5 lakh, they seek some form of security from these units. She, however, did not eleborate the RBI stace to deal with this.
Though bank credit to small and medium enterprises has grown substantially in the recent past, it is not commensurate with their share in the economy.
Banks could use group collateral approach along with and SHG model and Micro Finance Institutions, both of which have helped to improve financial inclusion, for micro and small units also, Thorat said while addressing the Indian Banks' Association's meet on Leverage lending to MSMEs'.
The collateral approach as well as lending in group is expected to help in bringing peer pressure for ensuring prompt repayment of loans, ensuring low incidence of defaults, bankers said.
She also made out case for credit guarantees trust to charge premium to banks based on the risk of their SME portfolio. At present, the trust levies flat fee for providing a comfort that it will make repayment in the case of default by SME units. The guarantee scheme has the potential to bring new borrowers into the SME segment, she said.
Banks should price the credit to SMEs according to the risk assessment. For which they could use the trends and signal thrown up by the core banking software. Besides helping in pricing loans, the information could provide early warning on difficulties faced by the units so banks could take proactive steps, she added.
