RBI urges banks to adopt SHG model for SMEs

Mumbai, July 8 (UNI) Insisting on fast mobilisation of advances for small and medium enterprises (SMEs), the Reserve Bank of India today asked banks to explore using self help group (SHG) model loans to SMEs, adhering to the guidelines in this regard.

Addressing a seminar organised by Indian Banks Association here, RBI Deputy Governor Usha Thorat said many banks are not following the norms on collateral security while lending to small and medium enterprises.

She said banks are not supposed to insist on collateral security from SMEs for loans up to Rs five lakh but only take into account the viability of their projects while granting loans.

Though bank credit to small and medium enterprises has grown substantially in the recent past, it is not commensurate with their share in the economy, Ms Thorat remarked.

Banks could use group collateral approach along with and SHG model and Micro Finance Institutions, both of which have helped to improve financial inclusion, for micro and small units also, she said.

Ms Thorat also made a case for credit guarantees trust to charge premium to banks based on the risk of their SME portfolio. At present, the trust levies flat fee for providing a comfort that it will make repayment in the case of default by SME units. The guarantee scheme has the potential to bring new borrowers into the SME segment, she added.

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