Rs 500-cr SME fund soon
Small Industries Development Bank of India (Sidbi) will soon be launching a Rs 500 crore venture capital (VC) fund specifically targeted at the small and medium enterprises (SMEs) this month-end.
Briefing reporters, Sidbi Chairman & Managing Director V K Chopra said here on Wednesday that the proposed fund will be floated with the participation from some public sector banks.
Stating that Sidbi had got commitment of Rs 200 crore, he said, several banks have given their ‘in principle’ approval to partner Sidbi in the fund. The main objective was to finance projects for the SMEs, he added.
Both Sidbi and Punjab National Bank have committed Rs 100 crore each in the fund, while Bank of India had agreed to invest similar amount, he pointed out, adding an existing venture fund had funded Rs 484 crore into SMEs for expansion of their different projects. “We have not supported these projects in terms of angel funding, but only financed expansion of existing ventures,” he clarified.
Earlier, addressing the session on SME Financing at the Conference on Global Banking: Paradigm Shift, Mr Chopra said a dedicated independent credit rating agency for SMEs has been mooted and the proposed entity would function from the current financial year.
He said, Sidbi had roped in six public sector banks to set up agency and that PNB, Bank of India, Canara Bank, Union Bank, Bank of Baroda, Oriental Bank of Commerce will join Sidbi in this new initiative.
Observing that SMEs play a catalytic role in the development process of most economies, he said in order to ensure hassle free credit to SSIs and encourage banks to shift from security-based lending to merit-based lending a risk cost for loans up to Rs 25 lakh has been proposed and will be launched soon.
Mr Chopra said it has also been proposed to enchance the corpus of the Credit Guarantee Fund Trust for small industries (jointly floated by Sibdi & Government of India) from the present Rs 700 crore to Rs 2500 crore.
A new SME Growth Fund of Rs 10 crore focusing on pharma, biotech, light engineering, software and other knowledge-based industries was also being enhanced to Rs 500 crore, he added.
Presenting the Banker’s Perspective, Bank of India Executive Director M Balachandran exhorted banks to view lending to the SMEs as a profitable avenue rather than an revenue for coerced lending.
Calling for paradigm shift in lending operations to SMEs, he opined that banks must become more discerning and manage the operations pragmatically and pro-actively as SME segment is unique it needs to be addressed on its own terms.
According to Mr Balachandram, banks should come out of their asset-based lending mindset and devise new models like cash-flow and co-lateral based lending as also popularise the line of credit approach lending.
Nabard Chairperson Ranjana Kumar chairing the session in her introductory remarks advocated punitive measures to larger units which delayed payments to their ancillary / SME units. Banks should take this as a minus point while assessing the larger units, she added.
Citing a Nabard survey Ms Ranjana Kumar said the basic reasons for SMEs’ sickness was lack of demand, absence of proper forum for marketing, shortage of working capital besides the ubiquitous labour problems.