The Telegraph
Since 1st March, 1999
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Loan cost equaliser for small units

New Delhi, Sept. 7: The government is finalising a package for small-scale industries that will make it mandatory for banks to lend up to Rs 50,000 at 2 per cent below prime lending rate (PLR), between Rs 50,000 and Rs 2 lakh at the PLR and amounts above it at PLR, plus 2 per cent.

With the benchmark rate around 9 per cent now, this means small units can get working loans at 7-9 per cent and a larger volume of funds to set up or expand businesses at 11 per cent. Close to 3.5 million small-scale industries spread across the country borrow at 11-16 per cent.

The move is expected to give a major fillip to a sector that 20 million and has been hit by the government’s policy of opening up the economy to cheaper imports. Around 1.8 lakh small units have reported sick.

The bigger industrial groups borrow at PLR or sub-PLR rates, despite having a patchy record on loan repayment. But, small businesses, which lack substantial borrowing clout, have had to fork out higher rates on to banks. It is this financial dualism that has forced their associations to seek the intervention of the Prime Minister Atal Bihari Vajpayee. Sources say the finance ministry has agreed, in principle, to the package, which is similar to the loan sops announced earlier by the Prime Minister for farmers.

The planned concessions are the outcome of several meetings — and haggling over the quantum of the largesse — between small-scale industry minister C. P. Thakur and finance minister Jaswant Singh on the issue.

Thakur, who was in Calcutta to attend a function organised by the Indian Council of Small Industries, hinted that the package would be sent to the PMO in two weeks. Minister of state Tapan Sikdar has also held meetings with bank chiefs to thrash out the interest rate rebates. This comes after the union budget, where Singh had called for SSI loans to be given at rates close to PLR. However, banks had not followed this policy.

The new package will be a binding one with fixed rates, and will be implemented by the RBI.

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