RBI asks banks to expand SME focus

The Reserve Bank of India (RBI) has directed public sector banks to set up specialised branches for small and medium enterprises (SMEs) to cater to the fast-growing SME sector.

This directive is in addition to the earlier one to designate specialised Small Scale Industries (SSI) branches as SME branches.

The two directives have been issued to ensure SMEs easy access to credit, specialised service, and reduced transaction costs.

As reported by Business Standard, Devaki Muthukrishnan, Regional Director, RBI said, "Banks have been advised to adopt cluster-based approach to SME financing and displaying instructions guidelines formulated by banks as well as by RBI on their websites. Banks have also been advised to identify and select clusters of SME units which share a homogeneity and critical mass. A cluster-based approach also offers possibilities of reducing transaction costs and mitigation of risks for SMEs."

The RBI has further asked the banks to adopt a simplified, non-discretionary, and non-discriminatory mechanism for one-time settlements of chronic non-performing assets below Rs 10 crore in the SME sector, she added.

RBI has also operationalised the Credit Information Bureau of India Ltd (CIBIL) in order to increase the flow of credit and to institutionalise appropriate risk management systems for SME lending.