RBI proposes to ease bad loan norms for small firms

Export demand dropped significantly as recession hit the US and Europe. The small and medium sector had to face crisis due to this but now they might be able to get some relief from the banking industry.

The Indian Banks' Association and the Reserve Bank of India together are planning to allow easier restructuring of their non-performing assets by giving them a longer timeframe for repayment of debt.

Besides, a high-level committee will be setup by the government to review the situation and come up with guidelines to improve the sector, which generates large-scale employment.

The committee will be looking into the problems responsible for the slowdown and liquidity crunch, which have led banks to tighten their lending activities. The committee is also likely to act as a link between various ministries including finance and commerce.

In a recent meeting with Prime Minister Manmohan Singh, small and medium enterprises representatives had informed that banks have shown unwillingness in lending to the SMEs, which typically have low credit ratings.

As per the official data available, during the first six months of the current fiscal most banks have shown a deceleration in SME advances. In the April to September, state-run banks like the Central Bank of India and the State Bank of Bikaner and Jaipur have actually faced a negative growth in SME advances.

Anil Bhardwaj, secretary general, Federation of Indian Micro and Small & Medium Enterprises (Fisme) informed that a large number of these small enterprises are facing closure due to the global and domestic situation.

Fisme, in a letter to the Prime Minister, has informed that slowdown has resulted in repayment defaults by these enterprises.