While reducing deposit rates – to ensure all borrowers benefit from the lower rate scheme – bankers were urged to ensure the widespread implementation of the Pradhan Mantri Vaya Vandana Yojana, which has been extended for three years until ‘in March 2023. Citizens will receive 7.4% interest in the current fiscal year, with the rate due to be reset next year.
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With the Reserve Bank of India having repeatedly cut rates, the State Bank of India reduced its maximum fixed deposit rate to 5.7% for funds parked for 5-10 years. For seniors, the bank pays 6.5% per year.
The message was conveyed to bank chiefs at a meeting convened by Finance Minister Nirmala Sitharaman on Friday, with implementation of the Covid package being the key objective to ensure cash-strapped small businesses can access funds. fund, and at lower cost.
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Currently, small businesses borrow 11-12% from public lenders.
Last week the government authorized an emergency facility for business enterprises with turnover of up to Rs 100 crore and outstanding loans of up to Rs 25 crore.
These companies will benefit from an additional 20% working capital thanks to a government guarantee with an interest rate capped at 9.25%. Sitharaman urged bankers to do their utmost to ensure that all eligible borrowers benefit.
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Bank sources told TOI that lenders have been told they must also cut lending rates to ensure that the benefits of an RBI policy rate cut are passed on to borrowers. On Friday, the RBI cut the repo rate – or the overnight rate it lends to banks – by an additional 40 basis points. This means that state-run lenders will lower the rates on all loans over the next few months as they adjust their deposit rates.
“Basically the government wants the public sector banks to lend at 7.5% although this is not possible for all. But they will try to set the rates so that they can lend around the indicative rate,” a source said. banking. noted.
The Department of Finance is also asking the RBI to assign a zero risk weight to additional working capital for small businesses, as the loans will be guaranteed by the government-owned National Credit Guarantee Trustee Company. “Since 75% of the receivables issued by banks in the event that a loan turns into NPA will be settled by the company, the credit risk is very low and the benefit of reduced costs can be passed on to the companies. borrowers, ”a government official said.
A retired banker said it was in the interests of banks to secure funding for these businesses so they could stay afloat.
To look at Government pushes PSU banks to provide cheaper loans to small businesses