RBI makes case for MSMEs as potential businesses for banks

RBI makes case for MSMEs as potential businesses for banks

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RBI makes case for MSMEs as potential businesses for banks

There is a strong case for banks to look at the micro, small and medium enterprises (MSME) sector as a potential business, according to Reserve Bank of India Deputy Governor SS Mundra.

Speaking at the launch of certified credit counsellor for MSME by SIDBI, Mundra said, “If you look at the credit scenario in the banking industry in last few years the slowing down of credit growth, the experience is that banking industry has faced in the large industrial sector.”

With majority banks focusing on retail loans, Mundra said there is a limit to which the entire banking industry could remain focus on individual loans or consumer loans.

“Consumer loans can be meaningful if the people who are availing those loans are engaged in the productive activity and they are able to generate income. Consumer loans by nature don’t generate any cash flows, surplus. That put together there is a strong business case for the MSME sector,” Mundra said.

There are an estimated around 48 million MSMEs in the country providing employment to 11 crore people.

MSME sector contributes nearly 45 percent of the manufacturing output and around 40 percent of the nation’s exports.

“They are one of the most important vehicles for inclusive growth, job creation and poverty alleviation,” Mundra said adding that in small businesses barely 30 percent survive beyond 10 years of their formation as per global estimation.

Within that, a failure rate of 70 percent, around 80 percent fail because of stress in money matters.

Despite many initiatives by government and the regulators, a  large set of MSME units is outside the formal banking sector.

In addition, 93 percent of microenterprises are outside the formal banking sector.

Mundra said the certified credit counsellor may help build bridges of existing unmet demand and supply and improve communication for such enterprises.

[“Source-moneycontrol”]