Mumbai, May 23: Reserve Bank of India's working group on small and medium enterprises (SMES) has recommended that banks should promote non-deposit taking finance companies to extend quick credit to the SMES sector. "There is a need for financial intermediaries specifically aimed at financing tiny and small sectors. These entities, promoted by banks, could be in the nature of NBFCS but without any permission to accept deposits from public," RBI's working group, headed by A S Ganguly, said in its report. NBFCS would draw their resources from the banking system, by originating the loans and selling the same to the banks as a portfolio with appropriate arrangements for risk sharing, the report said.

Favouring turnover as criteria for defining SME sector, RBI group said those with turnover upto Rs two and Rs 10 crore should be described as tiny and small units respectively. The enterprises with turnover above Rs 10 crore and upto Rs 50 crore should be termed as medium size units. Till the government takes a view regarding turnover, a medium enterprise may be defined as an undertaking where the original investment in plant and machinery is more than Rs one crore but less than Rs 10 crore, it said.
Banks and Small Industries Development Bank of India (SIDBI) should jointly play a pivotal and proactive role in financing the SMES. The present slow down in lending to this sector is principally due to the risk aversion arising out of a high proportion of the lending becoming non performing assets.
Bureau Report