Sidbi to revamp Act to push credit to SMEs

The Small Industries Development Bank of India (Sidbi) is seeking amendment to the Sidbi Act to step up credit to small and medium enterprises (SMEs).

As per the amendment Sidbi plans 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 bill is expected to be placed in the Parliament in the monsoon session," said N Balasubramanian, chairman and managing director of Sidbi.

Meanwhile, Sidbi is working with commercial banks such as Yes Bank, Bank of India and UCO Bank to meet working capital needs of SMEs, he added. Yes Bank is the first private sector bank to tie up with Sidbi.

Sidbi's has set up an SME fund of Rs 10,000 crore, of which Rs 2,800 crore has been disbursed. The SME growth fund having a corpus of Rs 500 crore has taken equity exposure in two small and medium enterprise (SMEs) - Carz-on-rent and a pharma firm Bravo Healthcare.

The fund has invested around Rs 10 crore in Carz-on-rent, a licensee company of Hertz International, and Rs 8 crore in Bravo Healthcare.

The fund has made commitments of Rs 50 to 70 crore, said Balasubramanian. Sidbi will also set up a credit rating agency for small and medium enterprises (SMEs) by August 15.

This will be in association with the Credit Information Bureau India Ltd (Cibil), Dun & Bradstreet as well as banks such as State Bank of India, ICICI Bank, Bank of India, Bank of Baroda, Punjab National Bank, Bank of India and Central Bank of India, Canara Bank and couple of foreign banks have also shown interest.

Sidbi will hold 20 per cent stake in the rating agency, while other players will hold around 8 to 10 per cent each, sources said.

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

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.