The directive of the State Bank of India (SBI) to all associate banks that any credit proposal for above Rs.10 crore has to receive an approval of the Mumbai office of the SBI is likely to impact flow of funds to Micro, Small and Medium Enterprises (MSMEs).
This has been sent as an advisory to all associate banks, including State Bank of Bikaner & Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Patiala and State Bank of Hyderabad.
The Union Cabinet had earlier decided to merge all 5 associate banks with SBI, the central board of SBI had approved the schemes of acquisition of all these five banks last month.
Rating struggle
Industry sources said that most MSME units, enjoying credit limit of Rs.10 crore and above, either do not have an external credit rating or have managed to get only a rating that is below investment grade. Investment grade rating would typically mean a rating of ‘BBB’ or higher by RBI-approved credit rating agencies such as CRISIL, ICRA and CARE.
However, many such borrowers offer collateral securities that provide risk cover against the loan. These MSME units would be hit the hardest under the present credit curbs, said industry watchers.
“As External Credit Rating (ECR) is compulsory for all exposures of Rs.10 crore and above, approval from MD (A&S) is required for taking exposures in respect of existing units enjoying credit rating “Below Investment Grade” or are “ unrated”, if the total exposure is Rs.10 crore and above”, stated the Directive of SBI, recently.
Credit hampered
“This advisory would hamper credit flow to the MSME sector,” said M.C. Dinesh, President, Federation of Karnataka Chambers of Commerce and Industry. He said SBI did not have adequate work-force to handle the workload resulting from the directive. “Today’s world (demands) de-centralising for more efficiency; not policing…. It will take a lot of time to disburse loans and entrepreneurs will lose out.” “New borrowers in our state will definitely be affected. It’s a big-brother attitude,” said C. Mohan, President, Malabar Chamber of Commerce.
Source: Hindu
