After announcing substantial tax cuts for the industry, the government on Friday said it would set up a Rs 10,000 crore (Rs 100 billion) fund for providing small and medium enterprises loans at rates lower than the bank lending rates.
The Small Industries Development Bank of India will structure a Rs 10,000 crore fund to finance small- and medium-scale industries over the next two years, Finance Minister Jaswant Singh announced in New Delhi.
"In respect of small and medium enterprises, two major problems that have been identified relate to inadequacy of financial resources at competitive rates and lack of Sidbi-coverage for some of the medium-sized enterprises," he said.
Concessional resources already available with Sidbi, by virtue of deposits made by the foreign banks in lieu of priority sector lending, will be initially used for this purpose.
The interest on loans will be 200 basis points (2 percentage points) below the prime lending rate, he said, adding that the fund will be operational within four weeks.