Sidbi to set up venture capital fund for IT firms

The Uttar Pradesh government is in talks with the Small Scale Industrial Development Bank of India (Sidbi), whose headquarters is in Lucknow, for setting up a venture capital fund dedicated to IT companies looking to set up shop in the state.

In this respect, a Sidbi team is coming from Mumbai to Lucknow on 6 June to hold discussions with Zohra Chatterjee, Principal Secretary, IT and Industrial Development of the state government.

The plan, being facilitated by the Confederation of Indian Industry (CII), is part of the efforts to increase the availability of funding to the small units in the state.

A study conducted by CII shows that small units struggle to avail of bank lending, which tends to go more to the medium and bigger sized units. Small and medium enterprises (SMEs) constitute 80 per cent of the state's industry.

"There is not enough finance and no venture capital available to the small units in Uttar Pradesh," said Puneeta Priyadarshini, head of CII's state unit.

For instance, a small unit has been scouting for lending to finance the import of a machine that costs Rs 25 lakh. It has not been able to get the funds because for most banks the ceiling for such lending without any collateral fee is Rs 5 lakh only.

The Sidbi venture capital fund for IT has become relevant since the state government decided to set up three information technology parks in the state. Each of these will be under the public-private partnership model.

Few banks count small enterprises among the targets of priority lending, most of which goes to agriculture and transport. The high rate of closure of small units also plays a part in keeping lenders at bay.

Sidbi Venture Capital Ltd, a subsidiary of Sidbi, already has an SME growth fund which focuses on unlisted SMEs in the manufacturing sector as well as services.