Despite the global financial crisis, there was enough liquidity in the Indian banking system and banks were willing to extend credit to viable projects, Reserve Bank of India deputy governor KC Chakrabarty said on Saturday.
"There is no dearth of money in the system. Banks are sitting on tonnes of funds," Chakrabarty said a seminar on micro, small and medium enterprises, organised by industry chamber Confederation of Indian Industry.
Addressing the industry's concerns that banks were not lending to the MSME sector, he said credit flow to MSMEs had doubled from Rs 1,27,000 crore (Rs 1,270 billion) in 2006-07 to Rs 2,57,000 crore (Rs 2,570 billion) in 2008-09. In 2007-08, credit flow to the sector was Rs 2,13,000 crore (Rs 2,130 billion).
"Today, there is no bank in this country who will refuse money. Your problem is you do not require credit, you require money. Credit has to be self-liquidating on a viable project and has a cost," he said.
Chakrabarty suggested to banks that they should not be as aggressive as venture capitalists and must do their own assessment before advancing loans without depending on the credit rating agencies.
He added the country needs a robust MSME sector to grow at a rate of 10 per cent for the next 20 years. There are 30 million MSMEs in the country. The SME sector has showed an average growth of 18 per cent in the last five years. About 98 per cent of the manufacturing units are in the SME sector.