Sidbi gets fund ready for small firms

The Small Industries Development Bank of India has tied up Rs 450 crore of the small and medium enterprise fund announced in Budget 2005-06. The Rs 500 crore fund distinguishes itself as the largest venture capital fund dedicated to the sector.

SIDBI, Punjab National Bank and the State Bank of India have provided Rs 100 crore each, while Bank of Baroda and Oriental Bank of Commerce contributed Rs 50 crore each, N Balasubramanian, CMD, SIDBI said. "We will tie up the remaining Rs 50 crore shortly with two banks, including Central Bank," he added.

The fund has a targeted corpus of Rs 500 crore with a life of 8 years. The fund is "broad- based " and will include sectors like IT, life sciences, pharma, health care, food processing, infrastructure and retailing.

The fund is registered with the Securities and Exchange Board of India (SEBI) as a venture capital fund and has been structured as a unit scheme to make primarily equity or equity-related investments in growth oriented businesses having significant business activity in India.

The fund seeks to achieve attractive risk-adjusted returns for its contributors through long-term capital appreciation. The fund's focus is to invest in unlisted entities in the small and medium enterprises in manufacturing as well as services sector. It may also invest very selectively in listed entities, to take advantage of attractive opportunities in growing companies.

The mode of investment will include providing financial assistance primarily by way of equity or equity-linked capital investment. The fund, being of limited life, will seek to invest in ventures offering a strategy for clear exit within a reasonable time period.

The exit could be by way of IPO, offer for sale, merger and acquisition or sale to a strategic or a financial investor. On Rs 10,000 crore SME growth fund, set up in October last year, Balasubramanian said Rs 1,200 crore has been disbursed to 542 units.

"We will disburse much higher amount next year," he added.

SIDBI is planning to enter into a strategic alliance with a commercial bank to extend credit to the small and medium enterprises sector according to SIDBI, CMD, Balasubramaniam. It is talks with a several PSU banks. The alliance is a stop gap arrangement, till SIDBI gets into commercial banking, he said.

Last year, RBI denied SIDBI's foray into commercial banking, since SIDBI is created under an Act of the Parliament and not under the Banking and Regulations Act.