Credit Guarantee Fund inks pact with IOB for SME lending
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Credit Guarantee Fund inks pact with IOB for SME lending

Last Updated: Friday, December 21, 2012, 23:00
 
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Credit Guarantee Fund inks pact with IOB for SME lending
Mumbai: The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Friday signed an agreement with Indian Overseas Bank under the risk-sharing facility scheme for guaranteeing collateral-free credit facilities to eligible small units.

The CGTMSE is a venture between the central government and the Sidbi (Small Industries Development Bank of India).

Under the scheme, collateral free and/or third party Guarantee-free credit facilities over Rs 1 crore to Rs 2 crore sanctioned to eligible micro and small enterprises, are proposed to be guaranteed through select member-lending institutions of CGTMSE.

"We have signed the pact with IOB because they are quite aggressive on the MSME sector. In the last three years they have seen 110 percent increases in the coverage area. So we think they are the best bank for this scheme," CGTMSE Chairman and Sidbi Chairman & Managing Director S Muhnot said.

This is an initiative that enables banks to take up MSE financing as a viable and profitable business model, by sharing the credit risk of participating banks, apart from making participation contingent on better credit assessment and risk identification by banks, he said.

A credit guarantee acts as a counter-cyclical intervention when NPAs rise and during such times, the first step that banks do to keep off the MSME sector, he said.

Whether the initiative would not lead to higher NPAs for banks, Muhnot said there are in-built mechanisms in the scheme to ward off any such possibility.

For SMEs to avail of this facility, they have to not only get the internal assessment of credit rating by banks but also the same from an external rating agency. The units having BBB ratings will be eligible for the scheme, he said.

Stating that the MSME sector has seen over 20 percent growth in the past three years, Muhnot said, "We are trying to help those units with good track record through this scheme. We don't want some good units to be affected because there is some bad one also".

IOB Chairman and Managing Director M Narendra said, the bank, which has been focussing on lending to MSMEs under this scheme, has seen during the past two years these portfolois growing rapidly.

PTI



First Published: Friday, December 21, 2012, 23:00


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