Public sector, Union Bank of India has announced a slew of measures to support the micro, small and medium enterprises (MSMEs) that are troubled by the liquidity crisis.

The bank is planning to reach out to its MSMEs customers by drawing up a restructuring package which would support the customers that are liable to default. "We undertook a study of the problems being encountered by our MSME customers in the wake of the economic slowdown. Following the study, we have put in place a restructuring policy for our MSME customers. We want to reach out to our customers. We cannot allow them to fail," said Mr M.V. Nair, Chairman and Managing Director, Union Bank of India.

The package would allow MSMEs ad hoc advancing to overcome temporary funding mismatches, extended holding period for stockpile, reschedule loans on a case by case basis and convert working capital loans into working capital term loans. The bank has also extended the period of credit on bill purchases while margin payment is reduced wherever warranted.

This move is taken to reduce the possibility of non-performing loans which are otherwise expected to rise. As of September 30th, 2008 bank had an outstanding MSME portfolio of Rs 13,884 crore that accounted to 16.24% of the total advances.

The bank has identified ten clusters in the country where the economic slowdown is affecting MSMEs. According to the General Manager of the bank, Mr T.K. Sharma, these clusters include Ludhiana (hosiery), Mandi Govindgarh (steel re-rolling), Jamshedpur and Pune (auto components), Tirupur (knitwear), Mumbai (diamond), Surat (textiles), Varanasi (carpet), etc. These clusters would be considered by the bank for the restructuring facility.

The bank intends to set up 100 specialized business banking branches to help the MSME sector. These branches would be run by skilled staff that will ensure customers with loan application decision provided within 14 days.

Mr Nair further pointed that customers that have limits of up to Rs 35 crore or a turnover below Rs 1,000 crore can approach the bank for credit.

After the latest cuts in short-term key policy rates by the RBI, Union Bank of India has reduced its PLR by 75 basis points to 12.5%.