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Collateral-free lending: Mindset is the hurdle

M. Ramesh

Chennai , Feb. 13

WHY has the credit guarantee scheme, brought in to enable small-scale units to borrow without having to pledge any asset as security, not taken off?

In the three years till January, the disbursements under the scheme amounted to around Rs 165 crore. The Small Industries Development Bank of India, promoter of the scheme, says disbursements this year will touch Rs 300 crore, implying an expectation of a considerable acceleration in disbursements in the last quarter of the year.

This, according to the SIDBI's Chairman and Managing Director, Mr V.K. Chopra, is a result of its Rs 3-crore awareness campaign to sensitise both bankers and customers about the scheme.

The scheme is administered by the Credit Guarantee Fund Trust for Small Industries, a trust set up by the Government of India and SIDBI.

The trust stands guarantee to loans up to Rs 25 lakh. So far, about 13,000 small-scale units have benefited from this scheme.

There are two views about the scheme. One is that of the small-scale sector, which is clearly unimpressed by the scheme. SSI leaders point out that in a country, which has over 34 lakh small-scale units, 13,000 is but a grain of sand in the beach.

The other view is that of SIDBI: Look, there was nothing like this earlier. At least now, something is happening and some units have indeed benefited. Over a period, the scheme will take off.

But how to hasten the take-off? The crux of the matter is `mindset.' Bank managers at the branch level do not want to give collateral-free loans, even though the scheme is there to stand guarantee.

Surprising, isn't it? Here is a Government-sponsored scheme, which says, "Please give him a loan; if he does not pay back, we will pay you your money," and yet the banks are not willing to lend.

But there is a banker's point of view as well, which was put forth by the Executive Director of the Syndicate Bank, Mr K.M. Shet. Earlier, there was a similar credit-guarantee scheme, from the Deposit Insurance and Credit Guarantee Corporation.

When banks sought to invoke the guarantee, said Mr Shet, DICGC did its best to hide behind technicalities so that it did not have to pay the banks.

This experience at the back of their minds, there is an apprehension over the present credit guarantee scheme too, Mr Shet noted.

Also, the SIDBI scheme is applicable either for fresh loans or when borrowers ask for a raise in their loans, but not for the existing loans. A small-scale borrower cannot demand release of his pledged securities and ask the bank to take its cover under the scheme.

Obviously, some amount of reworking is required in the scheme, which should include providing comfort levels to bankers, so that they trust the scheme better.

According to Mr Chopra, it is not difficult to modify the scheme. He said: "There are only three people administering the scheme — the Secretary, Department of Banking, the Chairman of the Indian Banks Association and me. If there is any feedback about the need for modifying the scheme, we can do it."

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