The Hindu Business Line : SIDBI seeks RBI nod to become a partial bank

Mr V.K. Chopra (right), Chairman & Managing Director, SIDBI, with Mr N. Balasubramanian, Deputy MD, at a press conference held in Mumbai on Wednesday. - Paul Noronha

Mumbai , May 12

THE Small Industries Development Bank of India (SIDBI) has applied to the Reserve Bank of India to convert itself into a bank in a limited manner.

The Finance Ministry, SIDBI said, has already given its approval. "In addition to term loans, we want to provide working capital loans and do non-fund activities. This would include maintaining current accounts, giving LCs, cash credit facilities and collection mechanisms to small scale units and medium-sized enterprises. We will have to become a member of the clearing house to perform clearing operations," said Mr V.K. Chopra, Chairman and Managing Director, SIDBI, at a press conference called to announce its annual results. SIDBI hopes to get the RBI nod in six months' time.

The apex refinance institution will not be a full-fledged bank since it will not accept public fixed deposits, savings accounts or perform remittances. This change has been proposed since past experience has indicated that by providing term loans alone SIDBI kept accumulating bad debts since it remained isolated from the daily functioning of the small-scale units.

Another plan in the pipeline is the establishment of a credit rating exclusively for small and medium enterprises. SIDBI in association with Punjab National Bank and one of the established rating agencies in the country plans to do so in six months time, said Mr Chopra. For the fiscal ended March 2004, SIDBI has posted a 17 per cent jump in net profit to Rs 244 crore up from Rs 208 crore in the previous year. The increase in the bottomline is due to reduction in the average cost of borrowings through prepayments of higher cost loans worth Rs 1,000 crore. The Government promoted body has proposed a 10 per cent dividend with a total outgo of Rs 45 crore.

SIDBI's average cost of borrowings reduced to 6.35 per cent from over 9 per cent in the previous year.

Disbursements for the year were lower at Rs 4,417 crore (Rs 6,789 crore) given the tremendous liquidity in the system.

SIDBI has reduced its net NPAs to 2.38 per cent (3.84 per cent) with 78 per cent provisioning for its bad loans. The net NPAs stand at Rs 225 crore (Rs 472 crore).

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