Commerce ministry is learnt to have taken note of the problems faced by the small and medium scale pharma industry from the banking sector and is also planning some measures to financially support the SMEs, after the issues were taken up by the Pharmexcil with it.

Sources said it is too early to spell out how the ministry will help out the SMEs, but it has started the efforts after the issues have been repeatedly taken up by the Pharmexcil and some leaders of the SME sector in the past. A meeting was also held with the top representatives of the banks to figure out the problems and solutions, sources added.

One of the key issues cited was the denial of export credit to the SME sector on the pretext of volatile conditions. The banks make different interpretations and then the export credit was denied, the industry leaders had pointed out.

“Banks should not include foreign bill purchase against ECGC (Export Credit Guarantee Corporation) cover in the total exposure limit as the same is guaranteed by ECGC. The banks do not include Foreign Bill Negotiation (FBN) against L/C (letter of credit) in the total exposure limit as it is considered safe whereas ECGC cover is not covered safe,” the ministry was told.

Banks levy a capping of 4:1 on loans to SME units and the industry leaders have asked for raising it to 8:1 for exporting units as this will increase SME capacity to produce more and export more. They have also sought liberal loans from the banks to finance upgrading of units as per WHO GMP/US FDA standards.

“Banks should earmark at least 50 per cent of foreign currency packing credit for SME sector under priority lending. This will reduce the cost of finances and the SMEs will be at par with international companies. Likewise, banks should earmark 50 per cent of foreign currency loan for SME sector so that they can avail cheaper loans compared to rupee loans.  Banks should not ask for more collateral guarantees if extra export finance is required to increase exports. ECGC cover should be enough as a guarantee for banks. Banks should not discourage exports to African countries on the pretext that they are risky countries, as it is a thrust area of Ministry of Commerce under focus areas. In fact they should lend liberally for export finance with of course ECGC cover,” according to the representation submitted to the commerce ministry.

The ministry had taken note of the problems and conveyed them to the concerned banks and is in the process of sorting out them. Besides, some financial packages were also being planned to support the SMEs, sources said.