The govt is pushing public sector banks to ease lending rates to small scale industries (Representative image)
NEW DELHI: The government is pushing public sector banks to provide additional working capital to small businesses at 7.5% interest under the loan guarantee scheme that proposes to provide up to Rs 3 lakh crore, while also asking them to ensure that senior citizens earn higher returns on their fixed deposits.
While paring deposit rates-to ensure that all borrowers benefit from the lower rate regime-bankers have been asked to ensure widespread implementation of the Pradhan Mantri Vaya Vandana Yojana, which has been extended by three years up to March 2023. Under the scheme, senior citizens will be paid 7.4% interest during the current financial year with the rate to be reset next year.
With the Reserve Bank of India repeatedly reducing rates, the State Bank of India has reduced its peak fixed deposit rate to 5.7% for funds parked for 5-10 years. In case of senior citizens, the bank is paying 6.5% a year.
The message was conveyed to the bank chiefs during a meeting convened by finance minister Nirmala Sitharaman on Friday with implementation of the Covid package being the key focus to ensure that cash-strapped small businesses can access funds, and at lower cost.
Currently, small businesses are borrowing at 11-12% from state-run lenders.
Last week, the government had cleared an emergency facility for business enterprises with a turnover of up to Rs 100 crore and outstanding loans of up to Rs 25 crore.
Such businesses will get additional 20% working capital through a government guarantee with interest rate capped at 9.25%. Sitharaman has asked bankers to go all out to ensure that all eligible borrowers benefit from it.
Banking sources told TOI that lenders were told that they should also slash lending rates to ensure that the benefits of a reduction in the RBI’s key policy rates are passed on to borrowers. On Friday, the RBI had reduced repo rate – or the overnight rate at which it lends to banks – by another 40 basis points. This will mean that state-run lenders will be lowering rates on all loans in the coming months as they adjust their deposit rates.
“Basically, the government wants public sector banks to lend at 7.5% although it may not be possible for all of them. But they will try and work out the rates in a way that they can lend around the indicative rate,” a banking source said.
The finance ministry is also asking RBI to assign zero risk weight to additional working capital to small businesses as the loans will be guaranteed by government-owned National Credit Guarantee Trustee Company. “Since 75% of the claims raised by banks in case a loan turns NPA will be settled by the company, the credit risk is very low and the benefit of lower cost can be passed on to borrowers,” a government official said.
A retired banker said it is in the interest of banks to ensure funding to these businesses so that they can stay afloat.