The largest bank of the country, the State Bank of India has announced reduction of interest rates on Small and Medium Enterprises (SME) loans by 2 to 5 percent.

The bank chairman Mr. Pratip Chaudhuri, reasoned the move to bridge the gap between its SME loans and home loans sector. The current rates for the sector lie between 12 to 17 per cent, which from this June would be offered from 10-12 per cent.

At present, the bank has a SME loan book of Rs. 80,000 crore, which is 12 to 14 per cent of the bank's total advances. This move is suggested to be a result of Union Finance Minister, Pranab Mukherjee's advice to banks for "better supervision of asset quality".

The bank has been trying to improve its nonperforming assets (NPA) management, and recovered Rs. 1,000 crore. The bank has allocated the job of stressed asset management to around 400 people working in 9 branches spread over the country.

The lender saw a decline in its gross NPAs as a ratio of advances, which fell from 1.82 in FY10-11 to 1.62 in FY 11-12. Majority of stressed assets are from exports houses, mainly from the textile industry. The bank also advised its borrowers to keep restructuring as the last option, and said to consider it, "in case it is required, before default".