An Analysis of Role of Commercial Banks in Financing of Micro and Small Enterprises (MSEs)

Finance is the sine-qua-non for any organisation. SMEs are contributing immensely to India’s economic growth. The national objectives of equitable and inclusive growth can be best achieved through development of MSEs. Access to adequate and timely credit at a reasonable cost is the most critical problems faced by this sector. The present paper attempts to review the growth of MSMEs in India. This paper examines the trends in the sectoral allocation of bank credit to the MSE sector in comparison to non-MSE sector. The paper also attempts to examine the variations in bank credit to the MSE sector across bank groups. The time period for the present study is from 2005-06 to 2009-10. Trends in NPAs in MSE sector across different bank groups are also studied. The study concludes that perhaps the higher incidences of NPAs do not encourage commercial banks to extend credit to the MSE sector. Lastly recommendations are made for increasing flow of credit to MSEs.