SIDBI moves to cut SME credit risk

On the lines of the credit guarantee fund trust for small industries (CGTSI), the Small Industries Development Bank of India (Sidbi) is planning to come up with a new risk mitigation schemes for small and medium enterprise lending shortly.

The credit guarantee fund trust for small industries (CGTSI), set up by the government of India and the Sidbi in the year 2000, helps provide credit to SSI units, particularly tiny units, for loans up to Rs 25 lakh, without collateral or third-party guarantees.

The guarantee trust covers up to 75 per cent of the credit facility in case of defaults. KS Singhwan, zonal in-charge for the East, Sidbi, said: “We are in the process of finalising a couple of new schemes for risk mitigation in SME lending. Although banks are increasing credit off take to small units, there is a general feeling that they are not lending to the sector. The new schemes, which will be in lines of CGTSI, will be launched shortly.”

Singhwan hinted the new schemes would be in tandem with the bank’s other risk minimising measures like picking up equity stake in small units and incentivising commercial banks to lend to them. “The new schemes would incentivise banks to extend lending to SMEs, though they would not be a duplication of the existing scheme,” he added.

Sidbi has also earmarked Rs 100 crore in the current fiscal for picking up equity stake in small firms, through SIDBI Venture Capital Ltd, the wholly-owned subsidiary of the bank. Last fiscal, Sidbi extended a credit support of Rs 11,000 crore to SMEs, and the aim was to increase it by 30-35 per cent, Singhwan said.

Singhwan said high interest rates are unlikely to hurt the growth of SME lending, even though there were signs of economic slowdown. The benchmark prime lending rate of the bank was currently 14 per cent, while the MSME reference rate is 12.50 per cent per annum.

A recent study by the Centre for Micro Finance, Chennai, points out that the compounded annual growth rate of microfinance in India is about 76 per cent.