PSU banks slash interest rates on MSME loans up to 100 bps

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New Delhi: Public sector banks on Monday slashed interest rates on new and existing loans to micro, small and medium enterprises by up to 100 basis points to boost the performance of MSMEs, which together account for 45% of the country’s industrial production.

After an Indian Banks’ Association meeting, the rates on loans to micro enterprises have been slashed by 50 basis points with immediate effect. However, loans upto Rs 10 crore to small and medium enterprises would bear 1% lower interest rates. PSBs would also grant need-based ad hoc working capital loans of upto 20% of the existing limits to units that have an overall credit facility of upto Rs 10 crore. These loans can be repaid in one year with a provision of a moratorium of 6 months, during which only interest would have to be serviced.

If needed, the public sector lenders would pro-actively sanction adequate increases in working capital limits and relax cash margin on letters of credit.

The moratorium period in cases where project implementation has been delayed because of the current economic downturn could be extended on a case-to-case basis, according to the decision taken by public sector lenders.

Banks will also help units that are unable to repay their loan obligations on time by rescheduling their loans within the overall loans policy of the respective banks. PSBs have a total outstanding of Rs 1,48,000 crore from MSMEs, out of which Rs 66,000 crore worth loans were disbursed to micro enterprises. The move is expected to benefit 40 lakh MSMEs. MSMEs welcomed the package, but said it was below expectations. “We had demanded a 2% cut in interest rates. However, the measures taken by banks are positive. We hope that the government takes further measures,” Federation of Indian Small and Medium Enterprises secretary general Anil Bhardwaj said.

CII director general Chandrajit Banerjee said the steps would provide the much-needed support to the sector. "The MSME sector has been one of the worst hit as a result of the credit crisis and this would help ease the cost of credit burden on these companies. However access to easy credit still remains an issue for MSMEs," he said.