SBI freezes rates at 8% for small, medium firms

State Bank of India, the country’s largest lender, today decided to freeze interest rates on certain term loans and working capital for small and medium enterprises (SMEs) at 8 per cent.

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

Further, for new SMEs with fund-based loan requirements of between Rs 5 lakh and Rs 25 lakh, the bank has offered 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, said that the lending rates for new term loans of up to Rs 5 lakh are in the region of 8.5 per cent to 10 per cent. In the case of term loans between Rs 5 lakh and 25 lakh, rates vary between 9 per cent and 11 per cent. The bank, which has 1.2 million SME clients, has already announced two products for the small industry segment – SME Care and SME Help.

Under SME Care, an additional working capital facility of 20 per cent of the fund-based limits is given to take care of inventories as also delayed payments from their buyers due to the current downturn. SME Help is a term loan product offered for the purchase of fixed assets, including generator sets.

While SBI has not participated in the latest round of reduction in benchmark prime lending rates, it has decided to offer specialised packages for home, auto and SME loans where interest rates are frozen for a specified period of time at 8 per cent and would revert to the prevailing level once the special offer is over.

In addition, Bhasin said that SBI has been aggressively restructuring loans of SMEs that are facing temporary cash flow problems. So far, the bank has initiated restructuring in about 41,000 cases out of the 800,000 accounts. Some of the sectors which have experienced stress due to demand slowdown and financial crisis are textiles and auto components. At the end of March 2009, the bank’s outstanding SME loan portfolio was estimated at Rs 1,00,000 crore. During the current financial year, SBI is targeting a 24 per cent growth from the segment with focus on segments such as chemicals and pharmaceuticals.

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