SIDBI and India Overseas Bank have entered into an MoU on January 6, 2012 at Chennai to provide growth capital / equity to their customers in the Micro, Small and Medium Enterprises [MSME] segment. The MoU was signed by Shri S Muhnot, CMD, SIDBI and Shri M Narendra, CMD, IOB.
Recent studies have revealed that there is a huge gap in equity / quasi-equity financing eco-system for MSMEs. In order to address this gap, SIDBI has taken an initiative by providing such assistance to MSME units under the Risk Capital Fund. With a view to channelise growth capital / equity to a larger number of MSMEs, SIDBI has decided to partner with select banks to enhance its reach. The MoU with IOB is the first such initiative wherein SIDBI and IOB shall reach out to MSMEs across India, leveraging on the country-wide branch net-work of IOB.
Under the MoU, SIDBI shall initially provide a line of credit of Rs. 100 crore to Indian Overseas Bank for a period of 7 years from the Risk Capital Fund being managed by SIDBI. The line of credit shall be utilized to provide growth capital to deserving MSMEs for funding their growth requirements towards any bonafide business purpose including bridging the gap in project funding (i.e gap between bank term loan and available promoters contribution), Working Capital margin, intangible expenses (marketing / brand building, R&D, quality control expenditure, etc). The assistance can be provided through a variety of instruments like Subordinate debt, Mezzanine/ Convertible instruments like Optionally Convertible Debt/Debentures, Redeemable Preference Shares and Equity (on a selective basis) where business model/exit options clearly support such investment.
Small Industries Development Bank of India (SIDBI) is India’s apex level financial institution for the promotion, financing and development of MSMEs in the country. Established on April 2, 1990, under the Small Industries Development Bank of India Act, 1989 SIDBI is “the principal financial institution for the promotion, financing and development of industry in the micro, small & medium enterprises sector and to co-ordinate the functions of institutions engaged in similar activities and for matters connected therewith or incidental thereto. Micro, small & medium enterprises contribute significantly to the national economy in terms of production, employment and exports. SIDBI has crossed the milestone of cumulative disbursement of Rs 2 lakh crore as on March 31, 2011 benefiting more than 325 lakh people. During FY 2010-11, SIDBI’s outstanding credit to the MSME sector increased by 22% to Rs. 46,331 crore. Its asset portfolio crossed Rs. 50,000 crore as at March 31, 2011. The net profit after tax has increased by 22% to Rs 514 crore from Rs. 421 crore. The Networth of the Bank increased to Rs. 5,979 crore and the Earnings per share (EPS) improved to Rs. 11.42 from Rs 9.36. During the year 2010-11, SIDBI also received international award for MSME Financing & Development Project (MSMEFDP), under Local Economic Development Category, for “Making Market Work for MSMEs” by the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) – with membership of 116 institutions from 42 countries.