RBI should direct banks to increase credit flow to micro units

New Delhi, May 4:Pitching for norms for end use of bank credit, the Arjun Sengupta panel has said the RBI needs to direct banks to increase flow of funds to micro enterprises at reasonable rates as merely pumping in more liquidity in the system was not enough.
"Liquidity in itself will not solve the problem (faced by micro enterprises in getting credit) unless there are directive to banks on the end use of credit, in particular, more credit has to flow in favour of vast informal sector...," the National Commission for Enterprises in the Unorganised Sector (NCEUS) said.

The NCEUS, headed by noted economist Arjun Sengupta, in its report on 'The Challenge of Employment in India - an Informal Economy Perspective' submitted to Prime Minister Manmohan Singh last week said the recent policy measures to tackle the impact of the global meltdown have not proved to be of much help to micro units.

There has been 31 per cent liquidity expansion of banks from Rs 34,67,098 crore in March 2007 to Rs 45,28,277 crore in November 2008 following the RBI's steps to tackle the crisis.

It said despite lowering of prime lending rate, banks have not fully passed on the benefit to the customers. Loans to micro and small units are available at a minimum of 16 per cent, almost double the rate offered to large industries.

"There is an urgent need to reorient banking system and its goals in general and credit policy in particular,"it said. PTI