The Hindu Business Line : SIDBI to raise $1 billion from global lenders

Mumbai, July 10 The Small Industries Development Bank of India (SIDBI) plans to marshal $1 billion from multilateral financial institutions such as KfW (Germany), French Agency for Development (AFD), and Japan International Co-operation Agency (JICA) so that banks can lend more to micro, small and medium enterprises (MSMEs).

SIDBI wants to channel the resources to provide refinance to banks against their lending to the MSME sector and also lend directly to those units that have not been able to tap formal sources of financing. It is also seeking to augment substantially its resource base as it expects banks to step up lending to the MSME sector. Banks had collectively lent around Rs 3,15,000 crore in FY2009 ( Rs 2,00,000 crore in FY2008) to this sector.

According to the SIDBI Chairman and Managing Director, Mr R.M. Malla, “As a development financial institution, we are facilitating flow of credit to the MSME sector. While we are supporting commercial banks by offering refinance at competitive interest rates, we are also complementing their role by reaching out to those MSMEs which are not being financed by them.” SIDBI recently borrowed $400 million (Rs 1,960 crore at the current exchange rate) close to the LIBOR (London Inter-Bank Offered Rate) for 15 years from the World Bank against a Government of India guarantee.

The repayment for the World Bank loan is structured such that SIDBI is able to retain the money for a longer period, Mr Malla said.

The financial institution is also in talks with the World Bank for yet another line of credit in the range of $200-300 million for on-lending to micro finance institutions.

Mr Malla pointed out that SIDBI’s debt-equity ratio at 4:1 was perceived as a sign of strength of its balance-sheet by the lenders. Normally, banks and financial institutions leverage their capital 10-12 times.

“Our net worth is around Rs 6,000 crore. So, we can borrow up to Rs 60,000 crore. Whereas our actual debt is just Rs 26,000 crore,” he said.

To take care of foreign currency fluctuations, SIDBI recently entered into a transaction with a leading public sector bank, whereby it placed the foreign currency equivalent of about Rs 500 crore (which was raised from a multilateral financial institution) as a deposit with the foreign branch of the bank. In turn, it availed itself of a rupee loan for an equivalent amount.

While the PSB got foreign currency resources at a reasonable rate, SIDBI got rupee loan at a competitive rate. SIDBI plans similar transactions this year also.

More Stories on : Financial Institutions | Overseas Borrowings | SSI

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