The Hindu : Business : Assocham seeks priority treatment for SMEs

Online edition of India's National Newspaper
Friday, Jul 21, 2006

Business

Business

Assocham seeks priority treatment for SMEs

Staff Reporter

It urges RBI to take measured steps to normalise interest rates

KOCHI: The Associated Chambers of Commerce and Industry of India (Assocham) has suggested priority treatment to small and medium enterprises (SMEs) and agri-business in line with the budget proposals for fiscal 2006-07 in its forthcoming Review of Monetary and Credit Policy to be unveiled by the Reserve Bank of India (RBI).

The Assocham also urged the apex bank to adopt a measured approach towards normalisation of interest rates.

In a detailed representation submitted to the RBI, Assocham urged RBI to evolve special financial schemes to provide affordable and timely credit to sectors such as agriculture and agri-business, village electricity scheme, SMEs and tiny industries, micro and self-help groups, rural housing and infrastructure development.

Assocham said the RBI should lay down regulatory framework for lending to farmers and rural dwellers by commercial banks for which the lending norms should be stringent enough to have check on misuse of subsidised financing In addition, there should be a supportive environment to encourage new investments in the core sector, particularly in neglected areas of infrastructure development. Resource flow including long term funding to productive and green field projects should also be enhanced. In order to achieve macro-economic stability, there is a need to adopt a measured approach towards modernisation of interest rates. High credit off-take, trade deficit and inflationary pressures suggest that the RBI would maintain a tightening bias. The Assocham is of the view that transparency is needed in pricing the Bank Credit for customers' benefit. All banks should follow a uniform strategy for arriving at their respective benchmark lending rates - ensuring that borrowers understand how the rate is arrived. Thus, RBI must suggest uniform methodology for all banks.

Transaction cost is very high in India, as compared to other countries. RBI needs to advise the banks, to further reduce expenditure through rationalisation, training of staff and upgrade technology to reduce intermediation costs. Processing charges, upfront audit and appraisal fee need to be moderated for SMEs. The banking system, should be encouraged to increase flow of commercial credit, particularly to retail trade, Assocham said.

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