Public sector banks cut rates for troubled small businesses

Public sector banks cut rates for troubled small businesses
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First Published: Mon, Dec 15 2008. 10 52 PM IST
Updated: Mon, Dec 15 2008. 10 52 PM IST
Mumabi: India’s public sector banks, led by State Bank of India (SBI), announced on Monday cuts in interest rates for ailing micro, small and medium enterprises (MSMEs), besides other measures.
Interest on loans to micro enterprises has been reduced by 100 basis points, while loan rates to small and medium enterprises will now be lower by 50 basis points. Hundred basis points equal 1 percentage point.
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“The micro, small and medium enterprises are in strain and some are on the verge of shutting shop and becoming non-performing assets. The aim is to help this sector,” SBI chairman O.P. Bhatt said while announcing the cuts.
To improve credit flow to MSMEs, state-owned banks have also decided to grant need-based working capital loans up to 20% of the existing fund-based limits to units that have a fund-based credit facility up to Rs10 crore.
These loans can be repaid in one year with a provision of not repaying the principal amount for the first six months.
“The lowered interest rates will benefit all existing and new MSME loan borrowers,’’ said Rajender Mohan Malla, chairman and managing director of Small Industries Development Bank of India.
State-owned banks’ total outstanding to MSMEs stood at Rs1.48 trillion on 31 March.
The banks have also decided to reduce margins on receivables, and cash margins on letters of credit on a need basis. Receivables up to six months will be reckoned for book debt financing, said Bhatt.
Receivables are amounts suppliers and customers owe a business. Banks typically provide cash to businesses based on receivables and letters of credit and keep a margin of it in advance. Any relaxation in that makes more cash available to a company.
Banks would also consider extending the time for repayment for projects that have been delayed in the current scenario of a slowdown and will reschedule and rephase repayments on a case-by-case basis.
“Banks have also decided to consider second restructuring on a case-by-case basis. Many areas face power shortage. To help the firms in these locations banks have decided to provide soft loans for purchases of gensets,” Bhatt said.
anita.b@livemint.com
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First Published: Mon, Dec 15 2008. 10 52 PM IST