The Finance Ministry has asked public sector banks to double their lending to small and medium enterprises (SMEs) from the existing Rs 67,600 crore to Rs 1,35,000 crore within the next five years.Under the policy for SMEs tabled by Finance Minister P. Chidambaram in the Parliament today, the ministry has ‘‘advised’’ banks to fix annual targets in such a manner as to achieve a minimum 20 per cent year-on-year growth on lending to SMEs.The finance ministry has also stated that a one-time settlement scheme would be introduced that would apply to small-scale NPAs in the books of the banks as on March 31, 2004. While RBI is to come out with the norms for this settlement scheme, the total NPA for the small scale sector is estimated to be 17 per cent of the totaling lending to the sector, which stood at Rs 58,278 crore as on March 31, 2004. The one-time settlement scheme will be in force up to March 31, 2006.Though the government’s policies and RBI’s credit policy have so far concentrated on the manufacturing units in the SSI sector, the finance ministry wants to review the definition of SSIs to include services and trade sectors within its ambit.The finance ministry has also proposed a ‘‘transparent rating system’’ that will enable banks to charge interest rate according to the credibility of the company.SIDBI and Credit Information Bureau India Ltd (CIBIL) will set up the credit rating agency to rate the SMEs.Based on the recommendations of an RBI internal group that recommended treating companies having investment in plant and machinery up to Rs 10 lakh as ‘‘medium enterprises’’, the ministry asked the central bank to advise banks to frame policy for enhancing credit flow to them.The RBI panel favoured continuation of the current definition of SSI but wanted it to be reviewed after enactment of the SME Development Bill.It, however, proposed that SSI financing be treated as priority sector lending by banks. The ministry has also proposed a reduction in the guarantee fee charged by the credit guarantee fund trust for small industries from 2.5 to 1.5 per cent for all loans up to Rs 2 lakh, eligible women entrepreneurs and those located in north eastern and J&K regions.In a nutshell• The finance ministry has advised banks to fix annual targets in a manner as to achieve a minimum 20% year-on-year growth on lending to SMEs• The ministry has asked RBI to advise banks to frame policy for enhancing credit flow to SMEs • A transparent rating system has been mooted in order to enable banks to charge interest rate according to the credibility of the company• The ministry has asked banks to adopt a “cluster-based approach’’ to fund SMEs in 388 clusters
