In an effort to direct more credit towards the SME sector, finance minister Pranab Mukherjee has asked state governments and banks, especially in the western and central regions of the country, to increase credit flow to SMEs.

“The credit flow to SMEs has reduced drastically in the past 1 year, especially in Gujarat. The credit-deposit (CD) ratio which earlier used to stand at 80% is now below 60% in most parts of the state. Bankers here are generally quite rigid when it comes to SME lending,” said Maganbhai H Patel, president of Gujarat State Small Industries Federation.

Incidentally, the finance minister has also urged banks to penetrate into the rural belts of the central and western states to advance their services to the numerous MSMEs in those regions.

“In Madhya Pradesh, the CD ratio has not picked up much since it declined in September 2009. For a loan of Rs 1 crore, the banks in the state ask for a lot of documentation, making the borrowing process difficult for SMEs in particular,” said Dinesh Khandelwal, owner of Sanjay Traders, a small-sized unit in Indore engaged in manufacturing of industrial minerals.

Significantly, most banks like the United Bank of India, ICICI Bank and Bank of India have forecasted a 15-25% credit growth during 2010-11. An increase in SME lending can play a major role in helping banks achieve this credit growth target.

Sreemita Bhattacharya