State Bank of India has decided to shut-down its one-time settlement scheme (OTS) for bad loans made to small, micro and medium enterprises. The response to OTS is not satisfactory as business owners’ default. Repayment capacity of borrowers is found to be under severe strain.
The gross assets of SBI that is non-performing is 39,676 crore at March end 2012. Out of this, the share of SMEs is 11,929 crore (30.1 per cent). The total SME portfolio is found to be Rs 1, 39,175 crore by the end of March 2012.
The OTS scheme makes it necessary for concerned people to pay 5 percent of the loan taken so as to settle dues within a single year period. Under the scheme, there is discount of 15 per cent for the borrowers who make full payment within one month period. However, for borrowers who pay back within three months from date of approval of OTS, the discount is 10 percent.
Small and medium enterprises face challenges as input cost is rising and it is also not easy to heighten top line lending. SBI, the country’s largest public sector lender, has cut on lending rates so as to ease the pressure imposed on borrowers during repayment. There is an overall reduction of interest rates between the range of 50 to 350 basis points. A separate rate structure for SME borrowers is covered under the credit guarantee scheme.
This article was submitted by Raj Tulshan, Director of Business Development of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to firstname.lastname@example.org