The Hindu Business Line : SIDBI begins assessing State financial corpns for assistance

THE Small Industries Development Bank of India (SIDBI), which is currently monitoring the recently created, Rs 10,000-crore SME (small and medium enterprises) fund has begun the exercise of assessing the financial strengths and weaknesses of various State financial corporations (SFCs) to ascertain their credit absorption levels from the fund.

The bank has chalked out a five-point criteria for the purpose of assessing the SFCs and has so far found seven SFCs meeting these standards, the SIDBI Deputy Managing Director, Mr N. Balasubramanian, told newspersons here today.

He said the SFCs that met the criteria belonged to Andhra Pradesh, Karnataka, Kerala, Rajasthan, West Bengal, Himachal Pradesh and Tamil Nadu. Accordingly, SIDBI has entered into a memoranda of understanding (MoUs) with the first six SFCs to offer them funds at an interest rate of 7.5 per cent so that the ultimate SME borrower would get loans at a maximum of 9.5 per cent from the SFC. The bank expects to enter into a MoU with Tamil Nadu SFC shortly, he said.

According to Mr Balasubramanian, the SIDBI assessment criteria included sound financial parameters, low level of overdues to SIDBI, adherence to the prescribed recovery discipline, continuity of leadership by ensuring at least three to fours years of tenure for the Managing Director at the SFC, and acting in tune with the training inputs of SIDBI on issues such as recovery and credit monitoring. The bank proposes to complete the process of assessing the SFCs before June end, he said.

While those SFCs that met the criteria and entered into MoUs with SIDBI would get funds at a rate of 7.5 per cent, other SFCs would get the funds at eight per cent. However, there was no specific target on releasing funds under the SME Fund through SFCs, Mr Balasubramanian said. Funding through SFCs was one of the three routes of financing the SMEs. The other two include direct lending by SIDBI and lending through commercial banks, he said.

Complimenting the APSFC as one of the best performing SFCs in the country, Mr Balasubramanian said SIDBI was also evaluating the possibility of joint financing of SME projects with APSFC.

According to the APSFC Chairman, Mr M. Gopalakrishna, the funding by SIDBI would enable APSFC to significantly bring down its borrowing cost from the average of around 12 per cent during last fiscal, which in turn would also enable it to attract the good entrepreneurs back into its fold, he said. The high interest rates led some of the good borrowers to leave the corporation and go for cheaper funds from other sources.

Stating that the excellent recoveries by APSFC have enabled it to prepay its high-cost borrowings to the tune of Rs 30 crore, he said additional funds flow from SIDBI would enable the corporation to restructure its loan portfolio to more comfortable levels.

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