The Reserve Bank of India on Tuesday said the Small Industries Development Bank of India (SIDBI) can tap the external commercial borrowing route for on-lending to the micro, small and medium enterprise (MSME) sector.

For on-lending to the MSME borrowers, the RBI has stipulated that SIDBI should hedge the foreign currency risk in full in case the on-lending is in rupees.

On-lending in foreign currency will only be to those MSMEs which have a natural hedge by way of foreign exchange earnings.

Availment of ECB by SIDBI, including the outstanding ECBs, up to 50 per cent of owned funds, for on-lending to the MSME sector, will be under the automatic route and beyond 50 per cent of owned funds, the availment will be under the approval route, subject to a ceiling of $500 million per financial year.

(This article was published on November 6, 2012)
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