Reserve Bank of India’s (RBI) signal to end the soft monetary policy it adopted to ease credit flow during economic slowdown has set off alarm bells among various trade bodies.

During the second quarter review of Monetary Policy 2009-10 unveiled on October 27, the apex bank’s Governor D. Subbarao signalled the exit of an accommodative monetary policy.

Tamil Nadu Small and Tiny Industries Association (TANSTIA) vice-president KR.Gnanasambandan told The Hindu that flow of credit should only be eased as the effects of economic recession were yet to fully get over. “Access to banking itself is still not available for many micro, small and medium enterprises (MSME). Time is not yet ripe for tightening the credit flow,” he opined.

He also sought proportionate sub-allocation for MSMEs, like what is been done for other fields in priority sector such as agriculture and dairy. The banking interest rates for this sector should be lowered below the Prime Lending Rates, he added.

Tamil Nadu Chamber of Commerce and Industry president, V.Neethi Mohan, said that the RBI should direct banks to keep their credit policy in tune with the Union Finance Minister’s pronouncements assuring MSMEs of liberal credit flow.

“The banks have Rs.1.2 lakh crore in liquidity, which is being locked up by RBI’s moves such as the recent directive to increase provisioning for non-performing assets. Our Chamber’s long standing demand has been that MSMEs should be given credit at 10 per cent,” he said.

Madurai District Tiny and Small Scale Industries Association (MADITSSIA) vice-president, P. Sitaraman, said that even the effects of earlier stimulus packages were yet to be felt by small scale industries. “Only the large corporate and infrastructure companies are benefited. The cost of finance for MSMEs should only go down as banks have reported huge profits despite the recession,” he opined.

With MSMEs being one of the largest employers next only to agriculture, interest rates should go down to 7 to 8 per cent. Tightening the tap of credit flow would have an adverse impact on the sector. “We have also sent representations to the RBI and Union Finance Ministry,” he said.