SIDBI Introduced Rs 150 Bn Special Liquidity Facility of MSME Lending

The Small Industries Development Bank of India has launched a special liquidity facility of 150 bln rupees for micro, small and medium enterprises struggling on account of the liquidity squeeze, due to the coronavirus pandemic.

SIDBI has received the funds from the Reserve Bank of India. It will provide loans to the micro, small and medium enterprises through banks, non-banking finance companies, and microfinance institutions, the circular said, adding that the scheme would cover all entities that have an investment-grade rating.

This comes after the central bank at its press meet on Friday announced a special refinancing facility of 500 bln rupees for financial institutions such as National Bank for Agriculture and Rural Development, SIDBI, and National Housing Bank.

The scheme would provide support to non-bank finance companies and microfinance institutions through term loans to ensure operational continuity and onward lending to micro, small and medium enterprises, the circular said. To meet the eligibility criteria of non-bank lenders, it has to be registered with RBI as Investment and Credit Company, having minimum net owned funds and asset size of 200 mln rupees and 500 mln rupees, respectively. For microfinance institutions, a company should be registered as society, trust, cooperative society, company, mutual aided co-operative society or non-banking finance company-microfinance company, according to the circular.

Non-bank lenders and microfinance institutions that will receive the funding should have been in business for at least three years, and that it should have an external rating of BBB- or superior as on Mar 31. The term loans should be repaid in bullet instalment after 90 days from the date of draw or such date as may be decided by the bank, SIDBI said. It added that a processing fee of 0.10% on sanctioned amount up to 500,000 rupees with goods and services tax will be charged.

Further, to provide special refinance scheme to support micro and small enterprises, a scheduled commercial bank and small finance bank should be in operation for three years, with at least two years in profit, and have a minimum net worth of 1 bln rupees. The capital-to-risk-weighted assets of scheduled commercial banks and small finance banks should not be less than 9% and 15%, respectively. The non-performing assets should not exceed 10% for a scheduled commercial bank, and gross bad loans for small finance banks should be less than 7%.