Banks want SME, loan parameters defined

Bankers today asked the Reserve Bank of India (RBI) to formulate a uniform definition of medium enterprises and standardise parameters for assessment of loan applications.

"It is equally important to have a uniform definition of the term 'medium enterprises' as different banks follow different benchmarks. SME units starting new businesses find it extremely cumbersome to procure bank loans," said State Bank of India (SBI) chief general manager, Ramesh Kumar, at an SME round table organised by Confederation of Indian Industry (CII).

Most banks use the balance-sheets of SME units as a yardstick to determine the credit risk. Instead, turnovers or future sales of companies could serve as a better parameter.

SMEs expect banks to have a forward-looking perspective rather than taking stock of their past performances, banks pointed out.

Enumerating the various issues obstructing the growth of the sector, ICICI Bank's head - SME, Vijay Chandok, emphasised the need for banks to offer much more than mere loans and advances to the sector. The bank has tapped the tie-up route to offer legal and travel-related services and payroll management.

Chandok wanted the RBI to issue guidelines so that banks give no-objection certificates (NOCs) in a time-bound manner to SME borrowers intending to avail of a second loan from another bank.

The main hindrances to growth of the SME sector identified by banks were bottlenecks in infrastructure and marketing, delays in loan processing, lack of transparency in operations and technological obsolescence.

Small Industries Development Bank of India (Sidbi) has identified 50 clusters out of 388 listed by the ministry of finance.

"Co-financing of these clusters would be undertaken for which the RBI needs to lay down guidelines for both Sidbi and partner banks," said P Rudran, chief general manager, Sidbi.

As part of its initiatives for the sector, HSBC will launch factoring services for SMEs in the near future, giving the latter an alternative way to increase sales and also offering them 100 per cent credit protection. Subir Mehra, head - commercial banking (India), HSBC, stressed that the RBI needs to include lending to SMEs under the priority sector lending.