The Hindu : Business : Three-tier structure urged for financing small units

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Friday, Jun 10, 2005

Business

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Three-tier structure urged for financing small units

Special Correspondent

Need for an institutional framework

CHENNAI: The National Confederation of Small Industry (NACOSI) has appealed to the Union Finance Minister to be guided by the "ground realities" of the small scale industry sector as revealed by the third all-India census of SSIs (2001-02) while finalising proposals for expansion of credit to what the government calls the SME (small and medium) sector.

Welcoming the announcement made recently by the Finance Minister, P.Chidambaram, that the future thrust area in banking would be financing of SMEs, the President of the association, DE Ramakrishnan, pointed out that as per the census of SSIs, 99 per cent of SSIs were tiny units with investment in plant and machinery of less than Rs 2 lakh, employing less than six persons and producing up to Rs 10 lakh worth of goods. Management problems accounted as a factor of sickness only in 5.5 per cent of cases, compared to 48 per cent of cases which involved shortage of finance.

In view of these factors, the NACOSI president suggested a three-slab structure for financing of small scale and tiny units: interest at PLR minus two per cent for advances upto Rs 10 lakh; at PLR for advances between Rs 10 lakh and Rs 25 lakh; and at PLR plus two per cent for advances above Rs 25 lakh.

A sub-target of 12 per cent solely for SSI and tiny sectors should be fixed within the priority sector lending by commercial banks, while the present sub-target fixed by the RBI for tiny units should continue.

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