Banks may up credit flow to farm, SMEs

Banks may well have to gear up to lend more to the small businessmen and farmers. Indications are loans at far more competitive rates would be given to small and medium enterprises (SME) sector, and a further boost in credit flow to small scale industries and farm sectors could take place.

The government has clearly signalled the need for banks to pay greater attention to these segments given their potential for generating jobs. A pointer to this is evident in the Economic Survey which has voiced grave concern at the trend of declining credit flow to the SSI sector.

Farmers and small enterprises should have access to finance at competitive rates for all maturities for their credit-worthy projects, the government has said.

Last year, the government had told banks to double the flow of credit to the farm sector over the next three years.

For 2004-05, institutional credit to this sector is estimated to be Rs 108,500 crore compared to Rs 86,981 crore in 2003-04. The bulk of this will be contributed by commercial banks at Rs 52,441 crore. Although the initiatives of the government and RBI have started yielding results, as seen in the improvements in credit delivery, further efforts are called for.