With the recent enactment of Micro, Small and Medium Enterprises and Development (MSMED) Act, 2006 Small and Medium Enterprises (smes) sector has emerged. Like in any other developing countries, in India also, smes play a very significant role in terms of their balanced and sustainable growth, employment generation, development of entrepreneurial skills and contribution to export earnings.

The present research paper aims to analyse one of the most indispensable instrument to strengthen the SME sector in India, namely, the financing of the smes through the Banking Industry in India. The paper starts with an introduction briefly highlighting the importance of the SME sector in the Indian economy. The author then points out the various problems plaguing the smes in India and goes further to elaborate and discusses in detail the problem of lack of credit supply to smes through the Banking Industry in India. The paper discusses the major issues which are the reasons for the reduced credit supply by banks to smes. The paper then proceeds to give an account of the measures taken by the government to enhance credit supply to smes and also highlights the major initiatives taken by the Reserve Bank of India for the same.

The author then provides various suggestions to improve the credit supply to smes through banks. After providing the limitations of the study the paper finally ends with the conclusion providing a summary of the entire paper and briefly discussing the role of banks in strengthening the SME sector in India. 

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