Sidbi plans to float a rights issue in FY25 to expand its equity capital

Small Industries Development Bank of India (Sidbi), a refinancing entity for SME finance, will float a rights issue of equity shares in the next financial year to expand its capital base by Rs 10,000 crore and support a growing balance sheet.

It expects to grow its asset book to Rs 5 trillion by March 2024 from about Rs 4 trillion in March 2023, said S Ramann, its chairman and managing director, on the sidelines of the Global SME Finance Summit 2023.

The institution plans to go in for a rights issue in FY25 to infuse more capital from shareholders. The standing committee of Parliament has suggested capital support of Rs 10,000 crore to provide more lending support for SMEs. The government of India held a 20.85 per cent stake as of 31 March 2022. Besides this, State Bank of India had a stake of 15.65 per cent, while the share of Life Insurance Corporation of India (LIC) stood at 13.33 per cent as of 31 March 2023. The rest is held by other Public Sector Banks (PSBs) and institutions.

Its Capital Adequacy Ratio (CAR) was at 19.29 per cent at the end of FY23, as compared to 24.28 per cent at the end of FY22, due to effective capital utilisation to increase the portfolio of the bank, according to the annual report for FY23.

SIDBI's capitalisation level remains comfortable with a CAR of 15.63 per cent as of 30 June 2023, which is supported by lower risk weights for the refinance book, according to what rating agency ICRA said.

The asset base of the bank has shown growth of 63 per cent from Rs 2,47,379 crore to Rs 4,02,383 crore. In FY23, the bank registered income of Rs 18,485 crore, an increase of 102 per cent year-on-year, and net profit of Rs 3,344 crore, an increase of 71 per cent year-on-year.

ICRA stated that, given the sharp growth partly driven by higher refinancing requirements due to tightening liquidity conditions, SIDBI's leverage rose to 14.36 times as of 31 March 2023 (9.22 times as of 31 March 2022). However, leverage remained within the regulatory permissible level. Going forward, its borrowings are likely to increase, and the leverage is expected to rise, although it is likely to remain within the allowed limit of 18 times until 31 March 2024.

Ramann said the share of refinancing is about 92 per cent, while the remaining is taken up by direct lending. It expects the share of direct lending to grow to 15 per cent over the period.