LAHORE, April 30: United Bank (UBL) is said to have offered the Punjab Small Industries Corporation (PSIC) credit up to Rs800 million at as low an interest rate as six per cent for disbursement of subsidized loans to the small sector.

PSIC officials, who asked not to be named, said here on Wednesday that they were trying to negotiate with the bank to further slash the rate to 5.5 per cent. They claimed that the bank had agreed to it if the loan was returned in one year.

They said the corporation wanted to get the loan from the UBL for seven to 10 years, but the bank had offered it for a maximum of five years.

“All these matters would be discussed at the PSIC board meeting scheduled for next week. Only the board would make a final decision on the UBL’s offer,” the officials said.

They said the Punjab government had already permitted the PSIC to obtain Rs1.2 billion loan for financing small and medium projects at the subsidised rates.

The corporation is also negotiating with other banks to get a better deal. However, its officials say the UBL’s was the best deal offered to them so far.

They said they had turned to the private and other banks after a bad experience with the Bank of Punjab (BoP) which increased the lending rate on a previous loan got from it a few year ago to 14 per cent from 11 per cent.

The PSIC board would also decide whether to advance the credit to be obtained at an unprecedented low rate to the small sector at the same rate or at the subsidized rates. The PSIC picks up two per cent subsidy on the loans advanced for financing the projects approved by it. “The modalities are yet to be finalized,” the officials said.

The officials said the SME Bank had been objecting to the PSIC for providing subsidized loans to the small and medium sector because it was affecting the bank’s own business.

They said the SME Bank provided loans at 14 per cent which could not be justified because the weighted average of the lending rates had already come down to slightly greater than eight per cent. “The bank wants us to confine our role to just examination of project feasibility and its approval. But we are unable to understand why are the SMEs are being forced by the bank to get high cost credit if it is available in the market at a far low rate? Besides, no SME can sustain itself if it has to secure a high cost credit.” The corporation has approved projects to the tune of Rs225 million and disbursed Rs90 million from its revolving fund so far during the current fiscal year.

“The rest of the projects would be financed from the loan we are going to obtain from the commercial banks,” the officials said.