India’s small businesses find credit in short supply

MUMBAI/NEW DELHI: When a $2 billion dollar fraud at state-run Punjab National Bank rocked India two months ago, Chetan Hemani and other small business owners could have been forgiven for thinking "what´s that got to do with me?"Confident of his good credit record and long relationship with his bank, Hemani, who is a pharmaceutical machinery manufacturer and exporter, had thought getting approval for a 25 percent overdraft above his 10,000,000 rupee ($153,330) credit limit would be little more than a formality.

But when Canara Bank, another state-run lender, turned down his request in March, Hemani says he gleaned from conversations with bank officers that he was a collateral casualty in the fallout from India´s biggest banking scandal. "It is suffocating," Hemani said.

"When influential people defraud a big bank like PNB and run away, there is nothing they can do. All they do is to squeeze retail borrowers.

"The banks´ increased rigour risks throttling one of the most vibrant parts of India´s economy - the micro, small and medium enterprises (MSME) sector that has been growing at 10 percent annually for several years, according to government figures.