covered by institutional funding given that approx 95 % of villages are not covered by banks. there is, therefore, a need to bridge this gap through enabling policies. reserve bank has recently advised all the slbc convenor banks to constitute a sub - committee of the district consultative committees ( dccs ) to draw up a roadmap by march 2010 to provide banking services through a banking outlet in every village having a population of over 2, 000, by march 2011. such banking services may not necessarily be extended through a brick and mortar branch but can be provided through any of the various forms of ict - based models, including through bcs. reserve bank will closely monitor extension of banking services. my message to the msme sector is that as interest costs are a very small fraction of your operating costs, only approximately 4 %, do not ask for low interest rates from the banking sector, and instead ask for credit at competitive rates. credit has to be self - liquidating on a viable project and has a cost. 6. as regards the cost of credit, as per extant guidelines, all loans up to rs. 2 lakh are charged interest not exceeding plr of the bank. the rates of interest on loans above rs. 2 lakh have been deregulated and banks are given the freedom to fix the interest rates based on cost of funds, risk cost, transaction cost, etc. further, banks have been advised that with effect from july 1, 2010 the base rate system would replace the bplr system whereby banks would determine their actual lending rates on loans and advances with reference to the base rate. since the base rate would be the minimum rate for all commercial loans, banks could not resort to any lending below the base rate. accordingly, the current stipulation of bplr as the ceiling rate for loans up to rs. 2 lakh would be withdrawn. it is expected that deregulation of lending rates will increase the credit flow to small borrowers at reasonable rate. measures by rbi 7. rbi has recently taken several measures to enhance credit delivery to the employment intensive micro and small enterprises ( mse ) sector. one of the major concerns of the mse sector is the inability to arrange for collateral security and or third party guarantee. as a result, new entrepreneurs find it difficult to access credit from the banking system. accordingly, rbi have issued guidelines from time to time thereby advising banks to grant collateral free loans up to rs. 5 lakh sanctioned to the units of mse

k c chakrabarty : bank credit to micro, small and medium enterprises ( msmes ) – present status and way forward address by dr k c chakrabarty, deputy governor of the reserve bank of india, at the formal release of the india micro, small and medium enterprises report 2010 of the institute of small enterprises and development ( ised ), kochi, 21 may 2010. assistance provided by smt l vadera in preparation of this address is gratefully acknowledged. * * * 1. dr p m mathew, director, ised, dr k n kabra, chairman, ised, shri t o sooraj, director, industries and commerce, government of kerala, dr yerram raju, senior fellow, ised, senior bankers, msme entrepreneurs, other distinguished guests, ladies and gentlemen. i am indeed very happy to be in your midst today for the release of the 13th issue of the india, micro, small and medium enterprises report series of your institute. the msmes, given their limitations and constraints need professional support, to analyze their own environment, articulate their needs and understand the impact of policies that get shaped there from. i am glad that the institute is endeavouring to provide this support. 2. in a nation ’ s economy, it ’ s the small and micro enterprises which play a vital role. for, they not only give employment to a large number of unskilled and semi - skilled people but also support bigger industries by supplying raw material, basic goods, finished parts and components, etc. the critical role and place of the msme sector in the indian economy in employment generation, exports and economic empowerment of a vast section of the population is well known. there are about 2. 6 crore enterprises in this sector. the sector accounts for 45 per cent of the manufactured output and 8 per cent of the gross domestic product ( gdp ). msmes contributed close to 40 per cent of all exports from the country and employ nearly 6 crore people which is next only to the agricultural sector. msme is the best vehicle for inclusive growth, to create local demand and consumption. msmes cater to niche markets. the msmes of yesterday are the large corporates of today and could be mncs of tomorrow. thus the banks and other agencies should take pride while servicing the msmes as they are playing an instrumental role in the formation of mncs of tomorrow. 3. it was, therefore, only appropriate that the government of india enacted the