This was stated by DP Bagchi, secretary, ministry of SSI while inaugurating the national seminar on credit guarantee fund: `a tool for sustaining the growth of SSIs', organised jointly by Federation of Indian Chambers of Commerce and Industry (Ficci), ministry of SSI and UNIDO here on Wednesday.

Bagchi said that the fund would be initially set up with a corpus of Rs 125 crore of which, Rs 100 crore contributed by the government and Rs 25 crore by the SIDBI. The fund will be operated by SIDBI as a trust. He said loans upto Rs 10 lakh will be given from the trust which would mean that it would be targeting mainly the tiny sector. No collateral or any other agreement will be asked for these loans. However, the loanee has to give guarantee and registration fees which constitute income of the trust, Bagchi said.

On the sidelines of the Ficci meeting, Bagchi said that the reasons for the failure of the earlier credit guarantee scheme was the blanket guarantee which led to banks extending credits to all without looking into the feasibility of the project. Care would therefore be taken this time to protect the scheme from such situations. When asked about the statement of the commerce minister that the government is reviewing the impact of the QR withdrawal on toys, leather and textiles, Bagchi said that it is being discussed at the highest level.

He also revealed it is at the instance of the ministry of SSI that 198 items which are being reserved for the small-scale sector and enjoy quantitative restrictions were back loaded. The government is planning to make credit rating of small and medium enterprises (SMES) by professional credit rating agencies mandatory to improve their credibility and encourage banks to lend more credit to this sector.

"The small-scale industry (SSI) ministry is currently holding talks with the RBI and the banking department to finalise modalities of making credit rating compulsory for the SMES," Bagchi said. The ministry is also seeking suggestions from the various industrial associations, he said and added that a committee had been appointed by the fassI to prepare a report on the impact of making credit rating compulsory for smes.

On the issue of dereservation of certain items from the SSI sector, Bagchi said that the commerce ministry had approached them to review reservation of items like toys, leather goods and textiles. u "We are currently discussing the issue at the highest level and expect to take a final decision on the issue soon," he told reporters and added that the SSI ministry had welcomed the move to backload 198 items until April, 2001.

Non-availability of working capital, technical obsolence, poor marketing and internal disputes were the main reasons for sickness in the SSI sector and mutual guarantee funds would go a long way in addressing the problem, managing director of SIDBI Shailendra Narain, said.