Indian Banks Slowdown Lending to SMEs Due to Interest Rates Hike

Most of the Indian banks expect disbursement of term loans to SMEs to slowdown in the coming quarters, as these SMEs have halted their expansion plans due to the hike in the interest rates. Of course, the working capital is the main source for expanding their businesses for small and medium enterprises. And these SMEs are expected to make optimum utilization of their existing capacities in production units instead of going for extra facilities.

According to the India’s largest bank, State Bank of India, banks have not yet witnessed a significant decrease in SME lending so far. But the banks are increasing the interest rates quickly as they are expecting a slowdown in future. And SMEs have also kept their expansion plans on hold because of rising interest rates.

The SBI’s SME advances grew nearly by 23% to Rs 119676 crore for the 2010 financial year. And the SMEs expansion plans have been put on hold as the large companies are cutting their spending budget. Moreover, most of the large companies are also cutting their capital expenditure because they feel that current rates are too high and in future it will come down. As SMEs depend on large companies for getting new businesses, this resulted in the cascading effect, according to the IDBI bank. But some senior bankers have said that it is too early to predict a slowdown.

Source: Business Standard

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