Small Industries Development Bank of India (Sidbi) plans to raise around Rs 10,000 crore from various foreign and domestic development institutions by the end of the current financial year. According to a senior official from Sidbi, the bank’s borrowing from foreign institutions has increased, since the cost of funds in the domestic market is high.
The bank has already raised Rs 12,000-14,000 crore during the current year, and the additional Rs 10,000 crore will be through bonds, CDs and short-term loans. The bank has also asked the government for Rs 5,000 crore to lend to the MSME sector.
In addition, Sidbi plans to launch its third venture capital fund during the current fiscal. The Rs 600-crore fund will be named the India Opportunity Fund, according to a top bank official. Money for the new fund is to be raised from domestic financial institutions like banks, he added.
Ten years ago Sidbi launched its first Rs 100-crore fund, which focussed on the IT sector and earned a 10 per cent return. Its second fund, a Rs 500-crore SME-focussed fund, offered a 14-15 per cent return and bank officials expect the new fund to outperform the first two funds.
According to the official, Sidbi has increased its lending rate by 150 basis points over the last two years, less than half the increase in the Reserve Bank of India’s policy rate.
“We are able to manage this difference due to our borrowing programmes from foreign institutions like the Asian Development Bank, International Finance Corporation, Japanese institutions and others,” he said.
The difference between the cost of funds raised in India and the cost of funds raised from international institutions is 150 basis points. Despite this difference, Sidbi’s disbursements have slowed by 15-20 per cent, but that is because MSMEs have been affected by increases in raw material costs, wages and interest cost.
The bank is hopeful that matters will improve in the remainder of the current financial year.
The bank’s total outstanding with international institutions is around Rs 8,000 crore, of which Rs 1,200 crore was raised last year alone. The fundraising programme aims to facilitate the achievement of Sidbi’s growth target of 15-20 per cent this year.
The bank plans to invest around Rs 2,000 crore in the form of equity in micro, small and medium enterprises over the next five years.
A bank official said equity investments offer massive potential for the bank, adding that it is estimated the MSME sector’s debt and equity requirement is around Rs 250,000 crore, of which Rs 3,000 crore will be from formal mechanisms like venture capital and private equity.
While the opportunity is big, one of Sidbi’s greatest challenges is to reach out to the sector. To address this issue Sidbi is planning to join hands with banks. The first partner for the equity programme is Indian Overseas Bank, said the official.
Since India’s banks have a massive branch network across the country, Sidbi has decided to use their infrastructure to reach out to the MSME sector. This plan has proved successful in the Trade Guarantee Programme, under which Sidbi has so far disbursed some Rs 30,000 crore for 6.5 lakh guarantees.
