The Hindu : Business : PHD Chamber wants easy finance for SMEs

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Thursday, Dec 29, 2005

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PHD Chamber wants easy finance for SMEs

Special Correspondent

Different spreads on PLRs affect small borrowers

NEW DELHI: The Reserve Bank of India (RBI) should develop a mechanism to facilitate small and medium scale borrowers to avail themselves of funds from various banks at more flexible rate to enable them to operate effectively.

In a memorandum submitted to the RBI, the PHDCCI said on Wednesday that banks were charging different spread rates on Prime Lending Rates (PLRs), which could go up to four per cent, making it difficult for smaller borrowers to run their operations.

Pointing out that big blue chip companies were succeeding in getting funds at sub-PLR rates due to large amount of borrowing, it said medium and small scale borrowers, in spite of having top rating, were unable to negotiate best rates and it warranted a mechanism to end discrimination simply on the basis of magnitude of the funds availed of by the borrowers.

There is a strong case, it said, for banks to lend only at PLR, without any spread thereon to borrowers who do not commit any default in repayment of term loan and interest.

"The maximum interest rate in such cases may be fixed on the basis of PLR plus one per cent and under no circumstances interest should be higher than PLR plus two per cent for any category of borrowers," it said.

Pointing out that the RBI had given freedom to commercial banks to fix interest rate for export credit, the chamber said that many banks, instead of reducing their PLR in accordance with the market trend, continued to have high PLR, depriving the exporters the benefit of reduction in the general rate of interest.

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