The year 2008-09 was marked by a worldwide recession that dented the manufacturing sector. Though India was not hit by a recession, the global impact was felt as an economic slowdown. Many sub-sectors of the economy were affected and SMEs, being the most vulnerable, were impacted severely. Many units were losing sales orders, their collections dwindling, and inventories piling up. This was the story of SMEs. To top it, the uncertainty in the economy deterred new entrepreneurs from taking up ventures. Over the last one year, new start-ups are becoming rarer to sight. Further, even existing SMEs are thinking twice before making further investment for expansion or new lines of activity.
To address these tough challenges faced by existing and aspiring SME enterprises, State Bank of India has come out with three sets of solutions. The bank, with its long understanding of the sector?the bank?s SME portfolio has grown to over Rs 100,000 crore in advances?has developed customised solutions for the SMEs. These are products known as SBI Micro, SME Care and SME Help.
SBI Micro: This is a loan scheme for new SME ventures that require a small loan size of up to Rs 5 lakh. The loan is offered by SBI without any other collateral security at a very attractive interest rate structure. The bank charges a fixed rate of 8% per annum on the loan with no hidden or other charges like processing fee or inspection charges. The loan is repayable in three years. Borrowers are offered the loan with the credit guarantee cover of CGTMSE and the guarantee fee is to be borne by the borrowers. This is ideally suited for micro enterprises that are starting up a new venture. Any activity defined as SME by the MSME Act of government of India can be assisted by the bank under this scheme. Thus, new enterprises like small road transport operators, professionals, service enterprises, machine shops, lathe works, vulcanising units, welding units, galvanising shops and the like can avail of loans up to Rs 5 lakh without any collateral security. This scheme has been recently launched by the bank and is available till March 31, 2010.
SME units with slightly higher investment and loan requirements are offered loans up to Rs 25 lakh at an interest rate of 10% per annum. This, too, is offered without any collateral security and with the guarantee cover of CGTMSE. This is available till September 30, 2009.
SME Care: This is a special product being offered by SBI to its existing SME customers. An existing customer with a current level of loans up to Rs 10 crore is eligible for this assistance. Under this scheme, the bank offers additional working capital limits to the tune of 20% of the present working capital limits, to take care of the longer working capital cycle of the SME units. Facing the economic slowdown, most SME units have a higher period of realisation of book debts or they need to stock higher inventory levels to match the changing order book. Some would have gone in for newer production lines requiring additional working capital.
To meet any or all of these needs, the bank is offering additional 20% working capital limits, at 8% interest rate. To enable the SME units to avail of these limits without having to bring in additional capital funds as margin, the bank has relaxed the margin norms and extended cover period for receivables. It now allows a longer holding period for inventory and does not insist on additional collateral security to cover the new SME Care limit. Thus, all SME units that have been conducting their accounts with SBI satisfactorily can avail of the additional working capital limit under SME Care without any hassle. This scheme is currently available till September 30, 2009.
SME Help: Existing SME units that desire to make additional investment in the current economic situation require some soft support. This is provided by SBI in the form of SME Help. Under this scheme, any existing SME customer making additional capex and, hence, requiring term-loan assistance is given a new term loan at 8% per annum interest rate. These term loans are repayable in five years and the interest for the first two years would be fixed at 8.00% per annum. Thereafter, the interest rate will be reset at appropriate rate as applicable to the SME unit based on its risk rating. The capex may be of any kind, including for setting up additional production lines, change in lines, purchase of tools & dies for new orders, balancing equipment or even generator sets.
Thus, the bank has rolled out the red carpet for SMEs to overcome the current economic slow down, so that the SMEs?the backbone of India?s manufacturing sector?comes out unscathed from the current situation.
SBI has been offering various products and services to SMEs from the early 1960s. Pioneering initiatives of the bank included schemes like the Entrepreneur Scheme to support technocrats, Equity Fund Scheme, Stree Shakti Package to encourage women entrepreneurs, Project Uptech to give a fillip to technology upgradation among SME clusters and Pharma Dosage to encourage GMP compliance by pharmaceutical units.
The writer is general manager, SME business unit, SBI
