Sidbi changes tack, to focus on direct lending

The Small Industries Development Bank of India (Sidbi) has decided to redesign its business model and focus on direct lending rather than providing refinance to banks.

This follows the finance minister P Chidambaram's comment stating that the current business model followed by the institution was flawed as banks no longer require refinance.

"The board has cleared the new business model and will sent it to the government for approval," said Sidbi chairman and managing director N Balasubramanian.

Sidbi will also set up a credit rating agency for small and medium enterprises (SMEs).

This will be in association with Credit Information Bureau India Ltd (Cibil), Dun & Bradstreet as well as banks like State Bank of India, Bank of India, Bank of Baroda, Punjab National Bank and Central Bank of India. Sidbi will hold 20 per cent stake in the rating agency while other players will hold around 8 to 10 per cent each, said Balasubramanian.

Sidbi's new business model focused on direct credit, will also aim at micro finance development initiatives, said Balasubramanian. The institution has received an loan amount of around $100 million from World Bank for development activities.

As on March 2005 Sidbi's direct credit portfolio stood at Rs 2,800 crore. "Sidbi plans to increase it by 50 per cent by March 2006 and build a direct lending portfolio of Rs 10,000 crore by 2010," he added.

Sidbi aims to increase assistance to micro finance institutions from over Rs 200 crore to Rs 450 crore by March 2006, said Balasubramanian. Through the self help group (SHG) linkage programme the institution plans to cover 3.3 million families by March 2006, he added.

Meanwhile, Sidbi has also approached the finance ministry seeking amendments to the Sidbi Act to enable it provide working capital to small scale units.

The institutions plans to partner with commercial banks and gain expertise in disbursement of working capital requirement. Initially, it will set up a desk at various bank branches from where it will meet working capital needs and provide loan facilities.

In association with a Swiss company Seco, Sidbi will set up a limited liability company with a capital base of $10 million which will enter into risk sharing agreements with banks.

Meanwhile, Sidbi has posted a net profit of Rs 100 crore in the quarter ended March 31, 2005 against Rs 99 crore in the corresponding quarter last fiscal. Total income for the quarter dipped to Rs 248 crore from Rs 293 crore.

For the year ended March 31, 2005, Sidbi's net profit fell to Rs 225 crore against Rs 243 crore recorded in fiscal 2004. This followed a drop in total income for the year to Rs 948 crore from Rs 1,151 crore last year.