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Banks (Finance)

Government Pushes Public Sector Banks to Provide Working Capital to Small Businesses at 7.5% Interest

Strategic Insights

— 2 min read

The government is taking steps to support small businesses by pushing public sector banks to provide additional working capital at 7.5% interest under the loan guarantee scheme, which proposes to provide up to Rs 3 lakh crore. The move aims to help cash-strapped small businesses access funds at a lower cost. As part of this initiative, the government is also asking banks to implement the Pradhan Mantri Vaya Vandana Yojana, which offers a 7.4% interest rate to senior citizens.

Key Takeaways:

  • The government is pushing public sector banks to provide additional working capital to small businesses at 7.5% interest under the loan guarantee scheme, worth up to Rs 3 lakh crore.
  • The scheme aims to help cash-strapped small businesses access funds at a lower cost, with the goal of ensuring that all eligible borrowers benefit from it.
  • The government is asking banks to implement the Pradhan Mantri Vaya Vandana Yojana, which offers a 7.4% interest rate to senior citizens, and has extended the scheme by three years up to March 2023.
  • The State Bank of India has already reduced its peak fixed deposit rate to 5.7% for funds parked for 5-10 years, and is paying 6.5% a year to senior citizens.
  • The RBI has repeatedly reduced rates, with the latest reduction of 40 basis points on Friday, which will lead to lower lending rates for state-run lenders in the coming months.
  • The finance ministry is asking RBI to assign zero risk weight to additional working capital to small businesses, as the loans will be guaranteed by the National Credit Guarantee Trustee Company.
  • The loan guarantee scheme will provide additional 20% working capital to business enterprises with a turnover of up to Rs 100 crore and outstanding loans of up to Rs 25 crore.

Statistics:

  • Up to Rs 3 lakh crore is proposed to be provided under the loan guarantee scheme.
  • The interest rate for additional working capital to small businesses is capped at 7.5%.
  • The interest rate for senior citizens under the Pradhan Mantri Vaya Vandana Yojana is 7.4% currently.
  • The State Bank of India's peak fixed deposit rate for funds parked for 5-10 years has been reduced to 5.7% for non-senior citizens.
  • Senior citizens are being paid 6.5% a year by the State Bank of India.
  • The RBI has reduced the repo rate by another 40 basis points on Friday.
  • Business enterprises with a turnover of up to Rs 100 crore and outstanding loans of up to Rs 25 crore will get additional 20% working capital through a government guarantee.

Sources:

  • "Government pushes public sector banks to provide working capital to small businesses at 7.5% interest", Times of India, [date not specified]
  • "Finance Ministry asks RBI to assign zero risk weight to additional working capital to small businesses", Times of India, [date not specified]
  • "Pradhan Mantri Vaya Vandana Yojana extended by three years up to March 2023", PIB (Press Information Bureau), [date not specified]

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