Financial Assistance to SMEs: An Analysis of Decision-Making Criteria of Commercial Banks in India

In India, Small Scale Industries (SSIs) have an important role to play, which is evident from their contribution to GDP, employment generation, regional development, export promotion, etc. But many problems impede their growth, out of which finance is the most pressing one among others. Commercial banks have been found to be the main source of finance for SMEs. But informational opacity and risk in SMEs pose greater challenges for commercial banks in providing finance to them, hence resulting in a conservative approach of commercial banks towards SMEs. This article is an attempt to analyze the decision-making criteria of commercial banks while extending credit to SMEs.

In India, Small Scale Industries (SSIs) have an important role to play, which is evident from their contribution to GDP, employment generation, regional development, export promotion, etc. But many problems impede their growth, out of which finance is the most pressing one among others. Commercial banks have been found to be the main source of finance for SMEs. But informational opacity and risk in SMEs pose greater challenges for commercial banks in providing finance to them, hence resulting in a conservative approach of commercial banks towards SMEs. This article is an attempt to analyze the decision-making criteria of commercial banks while extending credit to SMEs.