India's largest lender, State Bank of India (SBI) has announced to freeze the interest rate at 8% on some term loans and working capital for small and medium enterprises (SMEs).

The bank informed that the interest rate on working capital assistance would be frozen up to September 2009 and loans up to Rs 5 lakh that are included in the Credit Guarantee Trust for Micro and Small Enterprises would be frozen for two years.

Meanwhile the bank has offered a fixed interest rate of 10% per annum for the next two years to the new SMEs with fund-based loan requirements between Rs 5 lakh and Rs 25 lakh.

SBI's chief general manager of SME, B S Bhasin said that new term loan up to Rs 5 lakh are available in the range between 8.5% and 10%, where as the term loans between Rs 5 lakh and 25 lakh will be offered at rates ranging from9% to 11%.

Recently the bank has also announced two products designed especially for the SMEs. SBI has introduced SME Care and SME Help with a view to help the sector to overcome crisis. Under the SME Care, the bank will extend an additional working capital facility of 20% of the fund-based limits to manage the inventories and delayed payments from buyers due to the current downturn. On the other hand, SME Help is a type of term loan that the SMEs can avail to purchase the fixed assets like generator sets, etc.

Moreover to help the cash-strapped SMEs, SBI has been aggressively restructuring loans extended to the sector. Until now, the bank has restructured around 41,000 loans out of the 800,000 SME accounts. SBI outstanding SME loan portfolio was recorded at Rs 1,00,000 crore at the end of March 2009.

The bank anticipates a growth of nearly 24% from the SME sector for the current fiscal. SBI is likely to focus more on the segments such as chemicals and pharmaceuticals.

An executive from the bank said, "The garments and auto sectors are showing signs of revival. But developments have to be watched carefully."

Although the bank has been offering specialized packages for home, auto and SME loans to counter the slowdown but it has not yet resorted to any cut on its benchmark prime lending rate as a response to the latest cut in policy rates.