Cap on loans by small lenders may go up 2 fold

KOLKATA: In line with the Centre’s commitment to increase credit flow to small and micro enterprises, the Reserve Bank of India (RBI) is likely to double the maximum size of single-exposure loans by state co-operative banks and other agriculture co-operative societies, which are more active in this space. This move will further liberalise the financial sector to cater to the developing economy.

At present, small agro-based units, cottage industries and traders in the interiors get loans not more than Rs 25 lakh from these co-operative entities. The cap, which was imposed in 2000, is now likely to be raised to Rs 50 lakh.

RBI has also been telling commercial banks to increase exposure to these small players. There is, however, no restrictive barriers for them to lend to small and tiny sectors. State co-operative banks and co-operative societies are more active in lending to small agro-based units, tiny partnership and proprietary firms and unincorporated business entities compared to commercial banks.

Therefore, both the banking regulator and the National Bank for Agriculture & Rural Development (Nabard) are believed to be in favour of raising the cap for state-level co-operative entities.

“Both RBI and Nabard are examining the issue,” Santosh Baguria, chairman of the parliamentary standing committee on credit to small-scale industries, informed bankers recently. The standing committee held a meeting with bankers here to review their progress in SSI lending.

The issue was raised at the meeting by West Bengal State Co-operative Bank chairman Samir Ghosh. “The current norm is a restraining factor for the co-operative sector’s business growth. We have represented Nabard to raise the ceiling of Rs 25 lakh to Rs 1 crore,” Mr Ghosh told ET.

The authorities are, however, likely to raise the cap to Rs 50 lakh for the moment. “We are examining this proposal. A final decision will be taken soon,” Nabard chief GM in Kolkata P Mohanaiah said.

At the meeting, Mr Baguria also told banks to become more open to the idea of offering loans to women entrepreneurs, especially in the hinterlands. According to RBI guidelines, commercial banks are required to provide 1% of their net bank credit to women entrepreneurs.

Overall, bankers present at the meet informed the standing committee that they witnessed a 20-30% growth in annual lending to the SSI sector.