The Hindu Business Line : Rs 2,000-cr risk capital fund to boost SMEs

Mumbai, Feb. 29 Small and medium enterprises will get a fillip with the Finance Minister, Mr P. Chidambaram, proposing to create a risk capital fund of Rs 2,000 crore in the Small Industries and Development Bank (SIDBI).

This fund will be used to provide equity assistance for projects in SME sector, said Mr Rajender Mohan Malla, Chairman and Managing Director, SIDBI. “Equity is a bottleneck when it comes to providing support to the SME sector,” he said.

Second fund too

The Government has also proposed another fund of Rs 2,000 crore for enhancing refinance capability to the micro, small and medium enterprises. Mr Chidambaram said that there has been a secular rise in the number of registered units, unregistered units, production, employment and exports in the SME sector.

As on January 31, 2008, the Credit Guarantee Trust with SIDBI had extended guarantees to 89,129 units for an amount of Rs 2,479 crore. SIDBI will reduce the guarantee fee on credit from 1.5 per cent to 1 per cent and the annual service fee from 0.75 per cent to 0.5 per cent for loans up to Rs 5 lakh.

Fees lowered

“The reduction of guarantee fee and annual fee on loans up to Rs 5 lakhs will further encourage banks to lend at comparatively lower rates and will bring down the cost of borrowings,” said Mr Malla. Currently, the fee is borne by both banks and borrowers, depending on the bank which lends. “In some cases, banks bear 50 per cent of the fee while some banks agree to pay the guarantee fee and ask customers to pay the annual fee,” said Mr Malla.

Positive step

Bankers said that the reduction in the guarantee fee and the annual service fee would bring down the overall cost of borrowing for the SMEs.

Mr Vijay Chandok, Senior General Manager, SME, ICICI Bank, said, “The reduction in the guarantee fee is a very positive step and will directly translate in a lower cost of credit. The overall cost structure for an SME is expected to come down.”

Mr Chandok said that this would boost a greater credit off-take from the SME sector, as the cost of borrowing would become more “manageable.”

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