Need to implement SME's corporate governance code: RBI
"There is a need to implement SME's corporate governance code," RBI Deputy Governor KC Chakrabarty said while speaking at the Economic Times Thought Leadership Conclave here.
Chakrabarty said that in spite of various measures taken by the RBI and the government, availability of credit to Small and medium enterprises (SMEs) continues to remain a major issue in the development of the sector in the country.
"Adoption of corporate governance framework by SMEs in India is indispensable for taking this sector to a higher growth trajectory," he said.
In order to increase credit flow, the central bank has already advised the banks to achieve a 20 per cent year-on-year growth in credit to the SMEs.
"To ensure enhanced credit flow to the sector, and more so to the micro units, based on the recommendations of the Prime Minister's Task Force on MSMEs, banks have been advised to achieve a 20 per cent year-on-year growth in credit to micro and small enterprises," he said.
Weak corporate governance of small firms, he said, burdened further with poor availability of crucial inputs, has made these firms extremely vulnerable.
"RBI is closely monitoring the achievement of targets by banks on quarterly basis and banks have been advised to device strategies to step up their lending to micro units," he added.
Chakrabarty further said that advances extended to the MSE sector are treated as priority sector advances.
"As per the extant RBI norms, banks are required to extend at least 60 per cent of their advances to the MSE sector to Micro Enterprises by 2012-13 and achieve a 10 per cent annual growth in number of micro enterprise accounts," he added.
In addition to loan financing, SMEs have the option of collaborating with venture capital investors, he said, adding other significant forms of financing include leasing, trade credit and fiscal incentives in form of tax breaks," he said.