Annual Policy Statement for the Year 2010-11- 20th April 2010
Part B. Development and Regulatory Policies
IV. Credit Delivery and Financial Inclusion
Credit Flow to the MSE Sector
Credit Guarantee Scheme for MSEs
73. Following the recommendations of the Working Group (Chairman: Shri V. K. Sharma) on credit guarantee scheme of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGFTMSE), it is proposed:
to mandate banks not to insist on collateral security in case of loans up to Rs.10 lakh as against the present limit of Rs.5 lakh extended to all units of the micro and small enterprises (MSEs) sector.
High Level Task Force on MSMEs
74. A High Level Task Force was constituted by the Government of India (Chairman: Shri T.K.A. Nair) to consider various issues raised by micro, small and medium enterprises (MSMEs) and draw up an agenda for action. The Task Force submitted its Report on January 30, 2010 to the Government of India. The Task Force recommended several measures having a bearing on the functioning of MSMEs, viz., credit, marketing, labour, exit policy, infrastructure/technology/skill development and taxation. In particular, it recommended that: (i) all scheduled commercial banks should achieve a 20 per cent year-on-year growth in credit to micro and small enterprises to ensure enhanced credit flow; (ii) any shortfall in the achievement of sub-target of 60 per cent for lending to micro enterprises of the total advances granted to the micro and small enterprises, would also be taken into account for the purpose of allocating amounts for contribution to rural infrastructure development fund (RIDF) or any other Fund with other financial institutions as specified by the Reserve Bank, with effect from April 1, 2010; and (iii) all scheduled commercial banks should achieve a 15 per cent annual growth in the number of micro enterprise accounts.
75. Banks are urged to keep in view the recommendations made by the Task Force and take effective steps to increase the flow of credit to the MSE sector, particularly to micro enterprises. The Reserve Bank will monitor the performance of banks in this regard.
Rural Co-operative Banks
Revival of Rural Co-operative Credit Structure
76. Based on the recommendations of the Task Force on Revival of Rural Co-operative Credit Institutions (Chairman: Prof.A.Vaidyanathan) and in consultation with the state governments, the Government of India had approved a package for revival of the short-term rural co-operative credit structure. As envisaged in the package, so far 25 States have entered into Memoranda of Understanding (MoU) with the Government of India and the National Bank for Agriculture and Rural Development (NABARD). Fourteen States have made necessary amendments to their respective Co-operative Societies Acts. As on December 31, 2009, an aggregate amount of about Rs.7,000 crore was released by the NABARD as Government of India’s share under the package to primary agricultural credit societies (PACS) in 11 States.
Financial Inclusion through Grass-root Co-operatives
77. There is a need for better understanding of the grass-root level rural co-operatives, which can play a more effective role as vehicles of financial inclusion. Besides, a large number of PACS, large adivasi multi-purpose co-operative societies (LAMPS) and farmers’ service societies (FSS), a number of thrift and credit co-operative societies have been set up under the parallel Self-Reliant Co-operative Societies Acts in some States. There is a need to understand the operations of these co-operative societies with reference to their membership profile, management structure, range of services being offered by them, savings mobilised from members/non-members, percentage of non-borrower members, credit extended to tenant farmers, oral lessees and agricultural labourers to appreciate the strengths of the well-functioning societies and their potential as an effective vehicle of financial inclusion. It is, therefore, proposed:
to constitute a Committee comprising representatives from the Reserve Bank, the NABARD and a few State Governments to study the functioning of well-run PACS, LAMPS, FSS and thrift and credit co-operative societies set up under the parallel Self-Reliant Co-operative Societies Acts to gather information on their working and assess their potential to contribute to financial inclusion.
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