Mumbai, Dec. 15: Small entrepreneurs have reason to rejoice.

State-owned banks today trimmed interest rates on loans to micro enterprises by one percentage point. Micro enterprises are those where the capital investment doesn’t exceed Rs 10 lakh.

Interest rates on loans to small and medium enterprises (SME) were also reduced by 50 basis points. The package of reliefs announced today will benefit nearly 40 lakh micro enterprises and SMEs in the country.

SBI chairman .P. Bhatt said banks would step up credit flows to the SME sector. The nationalised banks have decided to give need-based ad hoc working capital loans of up to 20 per cent of the existing fund-based limits to units with an overall credit facility of up to Rs 10 crore.

These loans can be repaid in one year with a provision of a moratorium of six months, during which only interest will have to be serviced.

To support export-oriented units, banks will also sanction adequate increases in working capital limits and relax the cash margins on letters of credit based on needs.

Bankers said they had also decided to extend the moratorium period for loans to micro units and SMEs which have had to delay projects because of the economic slowdown. This benefit will be extended on a case-to-case basis.

Banks will also help those units unable to repay their loan obligations on time by “rescheduling or re-phasing” their loans within the overall loan policy of the banks.