CREDIT POLICY

Assistance to SSIs by SFCs
Credit to SSI Sector
Other steps taken by Reserve Bank of India

The Government has a focused credit policy for small scale industries. The existing components of the credit policies are stated below:-

Priority Sector Lending

Credit to the small scale sector is ensured as part of the priority sector lending by banks.

Institutional Arrangement

Small Industries Development Bank of India (SIDBI) is the apex refinance bank. Term loans are provided by State Financial Corporations (SFCs), Scheduled Banks, Small Industries Development Corporations (SIDCs). Credit lending in direct/indirect forms is also undertaken to some extent by NABARD, NSIC etc.

Credit to SSI Sector From Public Sector Banks

The table below gives the status of credit flow to VSI Sector since 1991:-

The Table below give the status of credit flow to Tiny Sector since 1995:-

	At the end of March '95	At the end of March '96	At the end of March '97	At the end of March '98	At the end of March '99
Net Credit To Tiny Sector	7734	8183	9515	10273.13	8837.47
Tiny Credit as percentage of net SSI credit	29.93	27.76	30.2	27.0	20.7

Assistance to SSIs by SFCs

SFCs main objective is to meet Term Loan/Fixed Capital needs of the Small Scale Industries. There are 18 SFCs in the country.

The Table below gives the total assistance and assistance to SSIs by SFCs:-

Source: IDBI Annual Report

Improving the Credit Flow

Nayak Committee (1991-92)

Nayak Committee set up by the Reserve Bank of India in December 1991 (Report came in September 1992) dealt with aspects of adequacy and timeliness of credit to SSIs. Nayak Committee found that small scale sector was getting working capital to the extent of 8.1% of its annual output which was less than the normative requirement of 20%. Accordingly, Nayak Committee recommended that the SSI sector should obtain 20% of its annual projected turnover by way of working capital. Based on these, as well as other recommendations of the Nayak Committee, RBI issued a number of guidelines advising the banks togrant working capital to the extent of 20% of the projected annual turnover, timely disposal of loan applications and setting up of specialised bank branches for SSI loaning in areas of higher SSI concentration. This norm is applicable to units with annual turnover up to Rs. 5 crores.

Seven Point Action Plan (1995-96)

As a follow up of Nayak Committee recommendations, the Union Finance Minister in the Budget Speech of 1995-96, announced a Seven Point Action Plan for improving the flow of credit to small scale sector. This included:-

• Setting up of specialised SSI bank branches;
• Adequate delegation of powers at branch and regional levels;
• Conducting sample surveys of their performing SSI accounts by banks;
• Sanction of composite loans as far as possible;
• Regular meeting with SSI entrepreneurs;
• Sensitization of bank managers towards working of SSI Sector; and
• Simplification of procedural formalities by banks.

Action has been taken by banks on the above action plan.

Other steps taken by Reserve Bank of India to improve credit flow to SSI Sector (1996-2000)

1. In order to ensure that credit is available to all segments of SSI sector, RBI has issued instructions that out of the funds normally available to SSI sector, 40% be given to units with investment in plant and machinery up to Rs.5 lakhs, 20% for units with investment between Rs.5 lakhs to Rs.25 lakhs and remaining 40% for other units.
2. Public sector banks have been advised to operationalise more specialised SSI brnaches at centres where there is a potential for financing many SSI borrowers. As on March 2000, 389 specialised SSI branches are working in the country.
3. Extension of 'Single Window Scheme' of SIDBI to all districts to meet the financial requirements (both term loan & working capital) of SSIs.
4. With a view to moderating the cost of credit to SSI units, banks have been advised to accord SSI units with a good track record, the benefit of lower spreads over the prime lending.
5. In order to take expeditious decision on credit proposals of SSI units, banks have been advised to delegate enhanced powers to the branch managers of the specialised SSI branches so that most of the credit proposals are decided at the branch level.