Lending to the small scale sector has shot up, but banks expect moderation in the months ahead with corporate balance sheets under strain.
On a year-on-year basis, credit flow to small scale industries (SSIs) went up by 52 per cent (Rs 60,398 crore) during the first eight weeks of the current financial year. Total outstandings as on May 23 was estimated at Rs 1,76,282 crore. At the end of May 2007, the growth rate was estimated at 29.5 per cent.
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During the current financial year, the country’s largest lender State Bank of India is targeting a 29 per cent growth in credit flow to this sector. A senior ICICI Bank executive said that the private lender has extended 30 per cent more loans to the small and medium enterprises (SMEs) compared with last year.
Similarly, Union Bank of India is targeting a growth of around 35 per cent in lending to SMEs. In fact, during the first quarter it has bettered the mark with credit flow to small units rising 41 per cent to Rs 12,630 crore by June-end compared with Rs 8,962 crore in the previous comparable period. Mumbai-based Bank of Baroda saw funds flow to SMEs rising over 18 per cent to Rs 13,000 crore by June-end.
Though many banks, especially the foreign lenders, have decided to go slow due to deteriorating credit environment, a Union Bank executive said that delinquency levels are lower. “But with the IIP (industrial production) growth slowing down considerably, the situation may change,” an executive said.
Bank of Baroda General Manager S P Aggarwal said that the spurt in activity in SSI units was responsible for a higher demand in the last few months, but the growth momentum will be affected in the coming days due to inflationary pressure that forced banks to increase lending rates.
