SBI for term loans and working capital for SMEs freeze rates at 8%

State Bank of India, the country’s largest lender, has freezed interest rates at 8% on certain term loans and working capital for small and medium enterprises (SMEs).

Bank will be freezing interest rates on working capital assistance up to September 2009, while bank informed that loans up to Rs 5 lakh, which are covered under the Credit Guarantee Trust for Micro and Small Enterprises, will be frozen for two years.

Moreover, for new SMEs with fund-based loan requirements of between Rs 5 lakh and Rs 25 lakh, the bank is offering a fixed rate of 10 per cent a year for the next two years.

B S Bhasin, the bank’s chief general manager in-charge of SMEs, told that the lending rates for new term loans of up to Rs 5 lakh are in the range of 8.5 per cent to 10 per cent. While the term loans between Rs 5 lakh and 25 lakh, rates vary between 9 per cent and 11 per cent. The bank, is having around 1.2 million SME clients, and has already announced two products for the small industry segment – SME Care and SME Help.

In SME Care, bank offers an additional working capital facility of 20 per cent of the fund-based limits in order to take care of inventories even of delayed payments from their buyers due to the current downturn. While SME Help is a term loan product being offered for the purchase of fixed assets, including generator sets.

However SBI has not involved in the latest round of reduction in benchmark prime lending rates, but it has decided to offer specialized packages for home, auto and SME loans where it has freezed interest rates for a specified period of time at 8 per cent and would go back to to the prevailing level once the special offer is over.

Besides this, Bhasin explained that SBI has been insistently restructuring loans of SMEs that are facing temporary cash flow problems. Till now, the bank has instigated restructuring in about 41,000 cases out of the 800,000 accounts. The sectors which had come under high stress due to slowdown in demand and financial crisis are textiles and auto components. At the end of March 2009, the bank’s outstanding SME loan portfolio stood at Rs 1,00,000 crore. SBI for the current financial year, has a target of 24 per cent growth from the segment with main focus on segments such as chemicals and pharmaceuticals.

A bank executive informed, “The garments and auto sectors are showing signs of revival. But developments have to be watched carefully”.