Sidbi jacks up refinance rates by 50-75 bps

Small Industries Development Bank of India (Sidbi) has hiked the interest rates it charges on provision of refinance to banks against their priority sector lending portfolio.

It has increased refinance rates by up to 75 basis points (bps) since November 2005, amid tightening liquidity and hardening interest rates.

"The interest rates have hardened in the financial system. The highest refinance rate has moved from 6.5 per cent to 7.25 per cent," Sidbi Chairman & Managing Director N Balasubramanian said today. There could be a further rise of 25 bps in refinance rates, he added.

The hike in refinance rates has came as banks are increasingly resorting to refinance from Sidbi in the wake of tightening of liquidity. The outstanding refinance to commercial banks rose to Rs 2,800 crore at the end of December 2005 from Rs 2,100 crore a year ago, Balasubramanian said.

State Bank of India has sought refinance for about Rs 1,200 crore. Banks are looking for a substantial amount of refinance from Sidbi owing to growth in the credit offtake and availability of bulk resources, he said.

Balasubramanian was talking to reporters after SME Rating Agency of India, promoted by Sidbi, had signed an agreement with Dena Bank to rate small and medium units the bank plans to finance.

Sidbi's total outstanding credit for nine months ended December 2005 grew to Rs 12,361.89 crore from Rs 10,861 crore on March 31, 2005. Its direct lending to SMEs rose to Rs 7,470.90 crore at the end of December 2005 from Rs 6,816.54 crore a year ago, he said.

Sidbi's net profit for April-December 2005 rose to Rs 156.30 crore from Rs 125.06 crore in the previous corresponding period. Its net interest margin (NIM) improved to 3.60 per cent from 3.18 per cent. Sidbi was able to increase NIM through cost control and increased share of direct lending, where interest rates are in the range of 9-9.5 per cent.

Balasubramaian said Sidbi was working on an arrangement to provide assistance to small units that are affected by calamities and sudden deaths of entrepreneurs.