A recent press report said that the Reserve Bank of India (RBI) has asked banks to develop effective risk management controls for lending to small scale enterprises (SME).
According to reports the RBI has said that lending to the SME sector was extremely essential for economic growth, but still a policy change is required to help lending so that the risk is reduced.
Mr. Subir Gokarn, deputy governor, RBI, said that lending to SMEs, involves a lot of risk and the RBI is of the view that the risk increases as banks move down the hierarchy and so there was a need of an effective risk easing system in place.
The deputy governor said that it was necessary to make the small scale enterprises commercially viable and more competitive. According to RBI data, total deployment of gross bank credit by the micro and small sector as on June 17, was Rs 2,334 crore, against Rs 2,291 crore on March 25.
Reports said that even if, loans to the SME sector has increasing, the high non-performing assets have been a cause for concern. According to a report by the Boston Consultancy Group (BCG), the NPAs in the MSME sector were to an extent of 4.24 per cent as of March, 2011.