With the Rs 7,000-crore (Rs 70 billion) refinance window, micro, small and medium enterprises (MSMEs) will not face any fund crunch, says Sidbi Chairman and Manging Director R M Malla.
In an interview to Sidhartha, the Sidbi chief tells how demand will also rise after the recent government-RBi stimulus package. Excerpts:
How will the refinance scheme work?
The RBI support will go a long way in providing low-cost funds to Sidbi and help in augmenting credit flow to micro and small enterprises. We will use the funds for our direct lending and also for refinance to commercial banks, state finance corporations (SFCs) and non-banking finance companies (NBFCs), especially those that provide money by way of micro-credit.
The idea is to incentivise banks, SFCs and NBFCs to increase their exposure to the micro and small enterprises through refinance. Our board will meet shortly and decide the details of the schemes to be put in place. In addition, the government's package has allowed the Credit Guarantee Trust to cover more collateral-free loans up. The scheme will be launched shortly and all loans given by eligible commercial banks/FIs, without collateral security, from today will be eligible under the scheme.
What about the rate of interest?
We will get the line of credit from RBI at the repo rate. We are already providing long-term loans to SFCs at highly concessional rates. For banks, the rate of interest will depend on the tenure of refinance and while for short-term refinance, the rates of refinance will be highly concessional, but for longer-tenure refinance, the rates may be slightly higher. For us, the cost of funds will come down and we will pass on the benefits to banks.
How will you ensure that banks pass on the benefits?
Banks have already lowered their PLRs and are expected to further reduce deposit rates as a result of surplus liquidity. We may also examine building in a clause to ensure that the benefit is passed on to the ultimate borrowers.
While liquidity is comfortable, MSMEs are complaining about banks squeezing them. So, is the refinance window addressing that problem?
Banks are always keen to increase their exposure to MSMEs. However, in the last couple of months, apprehensions were being brought to the notice of policy makers as there was competitive pressure of borrowing from other sectors. Now, with the steps taken by RBI and the government's package, the situation will improve significantly. Steps have been taken to boost demand. Banks putting money in reverse repo may not find it as an attraction as it will earn only 5 per cent now.
After the new refinance facility and the earlier refinance facility, will your borrowings come down?
So far this year, we have borrowed around Rs 1,300 crore (Rs 13 billion) on commercial terms. The cost of funds from commercial sources had gone up in the recent past. Though the cost is coming down gradually, to the extent of support from RBI and the government, Sidbi has got great help. Otherwise, we would have had to deal with a higher cost of funds.
What about Sidbi's lending this year since credit demand and industrial activity are slowing down?
Our initial target for disbursements during the current financial year was about Rs 19,000 crore (Rs 190 billion) and, with the help of the concessional window, our actual disbursement may exceed the target.
During April-September 2008, our disbursements went up to over Rs 10,000 crore (Rs 100 billion), which was an increase of over 100 per cent. Between April and November 20, our disbursal was over Rs 13,000 crore (Rs 130 billion), of which about Rs 8,000 crore (Rs 80 billion) was by way of refinance to banks and the rest was for our direct lending, including for micro-finance.
Have you changed the targets for micro-finance due to fund crunch?
Our sanctions have crossed Rs 3,000 crore (Rs 30 billion) and disbursements are close to Rs 2,100 crore (Rs 21 billion), with the balance to be disbursed shortly. Our outstanding to this sector, which was about Rs 550 crore (Rs 5.50 billion) at the end of FY07, went up to Rs 950 crore (Rs 9.50 billion) at the end of FY08 and is expected to cross Rs 1,600 crore (Rs 16 billion) by March 2009. Besides, we have also so far disbursed about Rs 75 crore (Rs 750 million) as a capacity-building grant.
Our share of loans to MFIs is about 25 per cent. If there is any shortfall by any lender to MFIs and any MFI wants more loans, we are at their beck and call as we do not want them to reduce operations for lack of funds.
