FINANCING SCHEMES, PROMOTIONAL AND DEVELOPMENTAL ACTIVITIES OF SIDBI

CHAPTER V FINANCING SCHEMES, PROMOTIONAL AND DEVELOPMENTAL ACTIVITIES OF SIDBI The micro, small and medium enterprises (MSMEs) play a key role in the economic development of our country. The MSME sector has been passing through a phase of transformation due to globalisation. Globalisation has compelled the MSME sector to widen its institutional network and to pursue strategies compatible with global trends. This sector is an important tool for enhancing industrial production, employment generation, income generation, resource utilisation and export promotion. Realising the importance of the sector, the Government of India introduced Micro, Small and Medium Enterprises Development (MSMED) Act in 2006 to promote and foster the growth of this sector. This Act thus provides for progressive growth and development of MSMEs. In this context, it is desirable to mention that Small Industries Development Bank of India (SIDBI) has been consistently involved in meeting the diverse credit requirements of the MSME sector through its varied innovative schemes. Being an apex financial institution, SIDBI provides support to the MSME sector through its various schemes. SIDBI provides financial assistance to MSMEs through its direct credit and indirect credit schemes. The direct assistance is provided by the bank through term loans, working capital loan, MSME receivable finance and non-fund based facility. The indirect assistance is provided by way of refinance, equity assistance, resource support to Primary Lending Institutions (PLIs) or Non-Banking Finance Companies (NBFCs) and Micro Finance Institutions (MFIs). The schemes covered under direct and indirect assistance are further bifurcated into various categories. DIRECT CREDIT The bank provides direct credit in the form of term loan, working capital, MSME Receivable Finance and non-fund based facility. The term loan assistance is provided by SIDBI to MSMEs engaged in providing services, through its foreign lines of credit, Growth Capital and Equity assistance (GEMs), Flexible Assistance for Capital Expenditure (FACE) and Technology Information, Forecasting and Assessment Council (TIFAC) for project financing and for technology upgradation, modernisation, diversification, etc. These schemes are discussed below: 98

TERM LOAN Eligibility SIDBI provides direct credit for setting up of new projects as well as for growth, modernisation, diversification and marketing of existing viable MSME units. In addition, the bank provides loan for acquiring land and construction of factory with or without additional plant and machinery, for MSME units relocating to industrial areas. General Terms and Conditions The bank provides need based assistance. The interest rate is based on risk rating and linked to SIDBI PLR, i.e. at 12.75 per cent (current PLR). The security for loan is flexible. The period for loan should not be more than 7 years. Service Sector Assistance Eligibility The bank grants assistance by way of loan or capital to existing small and medium service sector enterprises and to promoters having experience in identical activity for setting up of new projects. The service sector assistance of SIDBI includes business like hospitality and tourism related activities, health care like setting up of clinics, hospitals etc., IT enabled services, advertisement, transport services, restaurants, auto dealers etc. General Terms and Conditions Assistance should be provided to service sector unit as per the Section 2(h) of the SIDBI Act. 99

The project cost limit for service sector projects would be considered upto Rs 75 crore, with bank s assistance to individual projects being restricted to Rs 50 crore. However, in respect of all service sector projects/units like hotels, etc. where the investment in core equipment is within the limit specified for medium scale service sector enterprises under MSMED Act viz., Rs 5 crore, it could continue to remain up to Rs 250 crore. Both capital expenditure and working capital requirements of the concerns in these sectors may be considered for financing. In the infrastructure area, financing of sound social/urban infrastructure projects like inter-state bus terminus, warehousing complexes, floriculture/horticulture/vegetable auction houses, etc. may be considered. Direct Assistance under International Line of Credits With a view to enhance the quantity and quality of finance to MSMEs, SIDBI entered into agreement with the Japan International Cooperation Agency (JICA), Japan, Kreditanstalt fur Wiederaufbau (KfW), Germany, Agence Francaise de Development (AFD), France, for acquiring lines of credit from these institutions. A brief detail about the schemes is mentioned below: Japan International Cooperation Agency (JICA): SIDBI provides direct assistance as well as refinance to other banks, SFCs and NBFCs for providing credit at concessional rates to MSMEs for enhancing energy efficiency and profitability of the units. Eligibility For Direct Assistance Assistance should be provided to new or existing MSME unit according to MSMED Act, 2006. The existing units must have good performance record and satisfactory financial position. The rating score of unit should be above the minimum investment grade rating of SIDBI. Energy saving projects must comply with the Energy Saving Equipment list displayed on SIDBI website. Any unit that is engaged in unlawful business is not eligible under the scheme. All those projects having less than 10 per cent potential for energy saving are also not eligible. 100

The entrepreneur is required to submit complete application form as per the prescribed format along with a copy of documents to the SIDBI branch office. In addition, the borrower must also furnish information about the energy saving capacity of the project for availing assistance under the scheme. Disbursements are made after complying with the eligibility criteria and the terms and conditions of the sanction. General Terms and Conditions The minimum promoter s contribution is 25 per cent for existing units and 33 per cent for new units. The maximum debt-equity ratio is 2.5:1. The asset coverage should be at least 1.4:1 for new units and 1.3:1 for existing units. The minimum amount of loan is Rs 10 lac. The rate of interest is 0.75 per cent below the normal lending rate and should be based upon the credit rating. A non-refundable upfront fee of 1 per cent of sanctioned loan and service tax as applicable should be charged. The maximum time limit for repayment should not be more than 7 years. The security for loan is first charge over assets acquired under the scheme or first/second charge over existing assets financed by SIDBI and collateral security, if necessary. KfW-SIDBI Financing Scheme With a view to promote energy efficiency, SIDBI provides credit to MSME s through KfW- Energy Efficiency Scheme, KfW- Cleaner Production Scheme, KfW- Innovation Finance Programme. These schemes are mentioned below: KfW- Energy Efficiency Scheme: The bank grants credit to eligible MSMEs making investment in equipments that leads to energy efficiency projects under a line of credit from KfW Development Bank in Germany. The energy efficiency investment includes upgrading or modernising of industrial boilers, optimisation of air pressure systems, energy efficient lighting etc. 101

Eligibility Assistance should be provided to new or existing MSME unit defined under MSMED Act, 2006. The unit must have satisfactory past performance record and good financial position. The rating score of unit should be above the minimum investment grade rating of SIDBI. The amount of taxes, import duties, etc. will be paid by the entrepreneur. For availing assistance under the scheme, the eligible MSMEs may apply through filling up a prescribed application form along with necessary documents by submitting in local SIDBI branch. The entrepreneur can also obtain information about reducing the energy consumption mechanism from SIDBI. General Terms and Conditions The minimum amount of loan is Rs 10 lac. The minimum promoter s contribution is 25 per cent of project cost. The debt-equity ratio is 2:1 The rate of interest is 0.75 per cent below the normal lending rate and should be based upon the credit rating. The Asset Coverage should be 1.75 for service sector units and 1.3 for manufacturing units. The loan should be returned in a period of 7 years. KfW- Cleaner Production Scheme: Under this initiative, SIDBI provides credit to those MSMEs making investments in cleaner production, reduction of emissions and pollution through Common Effluent Treatment Plant (CETP) facilities. The scheme which comprises investments in waste management, waste reduction, waste recycling, storage and disposal facilities, etc. are considered eligible for getting assistance. The bank has utilised the entire funds available under KfW-Cleaner Production Scheme. 102

Eligibility Assistance should be provided to new or existing MSME unit defined under MSMED Act, 2006. The unit must have satisfactory past performance record and good financial position. The rating score of unit should be above the minimum investment grade rating of SIDBI. The investments will result in reducing air pollution, water and soil pollution, wastage of raw material etc. The amount of taxes, import duty etc. will be paid by the entrepreneur. For getting credit under the scheme, the eligible MSMEs can apply for loan through duly filled application form along with other necessary documents as required, to the nearest SIDBI branch office. General Terms and Conditions The minimum amount of loan is Rs 10 lac. The minimum promoter s contribution is 25 per cent of project cost. The debt-equity ratio is 2:1 The rate of interest is based upon the credit rating and is 0.75 per cent below the normal lending rate. The asset coverage should be 1.75 for service sector units and 1.3 for manufacturing units. The loan should be returned in a period of 7 years. KfW- Innovation Finance Programme: This scheme focuses on the supply aspect of clean technologies. Further, a technology can be characterised as Innovative if it results in environment protection and is not available in that particular region. Eligibility As per this scheme, assistance will be provided to new as well as existing MSME units having good performance record. The loan is extended to those units that are engaged in demonstration, development and commercialisation of innovative clean technologies in products and services. All projects that are related to waste water treatment, industrial pollution control activities, units engaged in development of energy efficient equipments are eligible to avail assistance under this scheme. 103

General Terms and Conditions The minimum amount of loan is Rs 10 lac. The minimum promoter s contribution, debt-equity ratio, rate of interest, conditions related to asset coverage and period of repayment should be based upon direct credit scheme norms issued. Sustainable Finance Scheme (SFS): SIDBI introduced a new scheme called sustainable finance scheme during 2012-13 for those sustainable development projects which contribute in energy efficiency and cleaner production but are not covered under international or bilateral lines of credit given through international or bilateral agencies. Thus, all sustainable development projects like renewable energy projects, green buildings, green micro finance, Bureau of Energy Efficiency (BEE) star rating and eco-friendly labelling, etc. are covered within the scope of this scheme. In addition, the financial assistance has also been rendered to Energy Service Companies (ESCOs) and Original Equipment Manufacturers (OEMs) engaged in manufacturing energy efficient and cleaner production equipments (SIDBI Annual Report 2012-13, p. 7). Growth Capital and Equity Assistance Scheme (GEMs) During 2011-12, Direct Risk Capital Scheme (DRCS) has been renamed as Growth Capital and Equity Assistance Scheme (GEMs) for meeting the need of capital for growth of MSMEs. A separate fund of Rs 2000 crore has been allocated to SIDBI risk capital in the Union Budget 2008-09. The main objectives of the scheme are to reduce the gap in methods of finance for expansion, modernisation and diversification for entrepreneurs keen to make intangible investments like product development, research and development, brand building, technical know-how etc. without collateral security. The bank provides risk capital assistance under the MSME Risk Capital Fund and Venture Capital Fund by way of equity, preference capital, optionally convertible debentures (OCDs), optionally convertible cumulative preference shares (OCCPs), etc. Further, to enhance the equity support to MSME sector, India Opportunities Venture Fund of Rs 5000 crore with SIDBI has also been set up as per the Union Budget 2012-13. Since assistance under this scheme is without asset cover or collateral security, hence a high level of risk is involved. So, new or existing entrepreneurs having 2 years of satisfactory banking performance record and 3 years of profitability are considered for assistance under the scheme. 104

Flexible Assistance for Capital Expenditure (Face) The bank has taken a new initiative in 2011-12 to meet the flexible and long term repayment schedule requirement of the new as well as existing MSME units making investments in fixed assets. The units which have satisfactory performance record are eligible for assistance under the scheme. As per this scheme, separate repayment criteria on the basis of nature of investment, economic life of project, etc. will be prepared for each component. The interest rate is based upon the tenure of each component of loan. The repayment period is need based. For immovable assets the maximum time period is 10 years including moratorium period. For other fixed assets the maximum time period is 7 years including moratorium period. Technology Information, Forecasting and Assessment Council (TIFAC) SIDBI along with TIFAC entered into an agreement and introduced a scheme named SRIJAN for development, demonstration and commercialisation of technology innovation in projects of new as well as existing MSMEs. A revolving fund of Rs 30 crore has been created by TIFAC and managed by SIDBI. Eligibility The new and existing MSMEs engaged in the development, demonstration and up-scaling of technology based product and processes are eligible under the scheme. The MSME units may send their project proposal to either SIDBI or TIFAC. The financial performance shall be done by SIDBI and technical evaluation of project shall be made by TIFAC. On the basis of sound appraisal results the Project Approval Committee (PAC) (comprising of both SIDBI and TIFAC officials) will recommend MSME unit eligible for sanction of loan. General Terms and Conditions The minimum promoter s contribution should be 20 per cent of the project cost. The scheme will provide assistance in the form of term loan upto Rs 1 crore at the interest rate upto 5 per cent. 105

The maximum repayment period is 6 years including moratorium period. The security is first charge on assets for both movable/immovable assets created or to be created under the project. A personal guarantee of promoters is also stipulated. WORKING CAPITAL LOAN Eligibility The bank is meeting working capital requirements of new as well as existing MSME and service sector units under MoU with IDBI bank. The bank started working capital facility during the year 2007-08. The facility was introduced in 26 branches of the bank. In addition, the bank also provides loan to Government recognised export or trading houses. However, the facility cannot be offered on standalone basis (i.e. without term loan assistance). General Terms and Conditions A processing fee of 0.50 per cent of the limit sanctioned and 0.25 per cent of the limit at the time of each renewal should be charged. The rate of interest is based upon credit rating or charged as per floating rate linked to PLR. The tenure of loan is one year and renewable after one year @ 0.25 per cent of renewal fee. Asset coverage ratio is 1.4 for new units and 1.3 for existing units. Fixed assets coverage ratio is 0.75 per cent for manufacturing units. TOL/TNW not more than 4:1. Current ratio required being 1.33:1. Interest coverage of 1.5 times. Margin on stock, receivables should be 30 per cent. Maximum 90 debtor s days. 106

The total amount of sanctions and disbursements by way of term loan and working capital loan by SIDBI are shown in Table 5.1. Table 5.1 Sanctions and Disbursements under Term Loan and Working Capital Assistance Year Sanctions Disbursements (Rs. in crore) Disbursements as per cent to Sanctions 1990-91 8.4 0.7 8.33 1991-92 39.3 10.3 26.21 1992-93 68 36 52.94 1993-94 330.4 240.6 72.82 1994-95 1011.5 540.2 53.41 1995-96 267.85 127.81 47.72 1996-97 583.11 187.45 32.15 1997-98 1192.63 430.44 36.09 1998-99 943.64 562.83 59.64 1999-00 1021.72 768.65 75.23 2000-01 995.64 771.01 77.44 2001-02 1276.18 550.74 43.16 2002-03 964.83 474.87 49.22 2003-04 1619.41 666.96 41.19 2004-05 1521.44 994.17 65.34 2005-06 2944.88 1461.81 49.64 2006-07 2263.85 1717.13 75.85 2007-08 1472.33 1646.38 111.82 2008-09 2595.27 2760.94 106.38 2009-10 4286.77 3005.7 70.12 2010-11 7300.75 4126.37 56.52 2011-12 9520.52 4234.2 44.47 2012-13 12269.76 1556.39 12.68 EGR 39.27 41.95 1.93 Mean 2369.48 1168.33 55.15 CV 133.41 107.17 45.96 Source: Compiled from Annual Reports of SIDBI. 107

Table 5.1 highlights that the total amount of sanctions under term loan and working capital assistance increased from Rs 8.4 crore in 1990-91 to Rs 12269.76 crore in 2012-13 and recorded growth rate of 39.27 per cent during the period. The amount of disbursements increased from Rs 0.7 crore in 1990-91 to Rs 1556.39 crore in 2012-13 and registered growth of 41.95 per cent over the period. The average amount of sanctions and disbursements by way of term loan and working capital loan were Rs 2369.48 crore and Rs 1168.33 crore during the reference period. The growth of sanctions showed a high degree of variation (CV=133.41) as compared to the total disbursements (CV=107.17) over the period. The loan disbursements as percentage to total sanctions were highest (111.82 per cent) in the year 2007-08 and lowest (8.33 per cent) in the year 1990-91. MSME RECEIVABLE FINANCE The scheme was also known as Bills Financing Scheme till 2006-07. After the enactment of MSMED Act 2006, the scheme was renamed as MSME Receivable Finance Scheme. The MSME receivable financing scheme of SIDBI is an important component of providing direct credit to the MSME sector. The major objective of this scheme is to reduce the problem of delayed payments to MSMEs so as to ensure timely payment of their bills. The bank has been operating four schemes since 1992-93 under bills financing namely, Bills Rediscounting, Direct Discounting of Bills (Equipments), Receivable Financing Scheme (earlier named as Direct Discounting of Bills (Components)) scheme and during 2005-06 Seller-wise Receivable Finance Scheme. The Receivable Finance Scheme helps the manufacturers of MSMEs by increasing their liquidity and cash flow by offering them financial assistance for the goods and services rendered by them to the purchasers. Under this scheme, the bank discounts bills arising out of purchase of component parts or sub-assemblies manufactured by MSME units and by providing services like packing, transportation etc. to medium or large scale units. Amongst all the schemes, RFS has gained most acceptability by MSMEs. Eligibility Purchaser wise limit It is required that purchaser should have been in commercial production for at least five years, earned net profit in 3 out of last 4 years. The corporate entity must have a good track record and made no default or no statutory arrears to banks or financial institutions. 108

General Terms and Conditions The current ratio required being 1.33:1. The quick ratio should be 0.50:1. TOL/TNW ratio should not be more than 4:1. External rating is compulsory for sanction of new limits. Seller wise limit It is necessary that seller should be an MSME service provider for at least five years and should have made profits in at least two out of the three financial years. The manufacturer or service provider in the MSME sector must be regular in repayment of dues and made no default or no statutory arrears to banks or financial institutions. General Terms and Conditions The minimum loan amount is Rs 25 lac. For loans up to Rs 1 crore, the asset coverage ratio of 0.75:1 should be provided by the bank. The security depends upon the mutual terms and conditions. The details about the MSME receivable finance scheme of the SIDBI are shown in Table 5.2. Table 5.2 depicts that the total amount of MSME receivable finance sanctions which increased from Rs 266 crore in 1990-91 to Rs 12582.29 crore in 2012-13 and registered growth rate of 19.16 per cent over the period. The MSME receivable finance disbursements increased from Rs 198.7 crore in 1990-91 to Rs 11528.15 crore in 2012-13 and recorded growth rate of 20.27 per cent during the period. The average amount of sanctions and disbursements were Rs 2976.22 crore and Rs 2784.07 crore over the period of study. The growth of disbursements showed lower degree of consistency (CV=118.40) as compared to the total sanctions (CV=116.95) during the period. The loan disbursements as percentage of the sanctions were maximum (98.26 per cent) in the year 2006-07 and minimum (74.70 per cent) in the year 1990-91. 109

Table 5.2 Sanctions and Disbursements under MSME Receivable Finance Assistance Year Sanctions Disbursements (Rs. in crore) Disbursements as per cent to Sanctions 1990-91 266 198.7 74.70 1991-92 463.2 348.8 75.30 1992-93 753.7 609.3 80.84 1993-94 1076.9 910.8 84.58 1994-95 1642.3 1442.6 87.84 1995-96 2079.65 1825.77 87.79 1996-97 2008.85 1771.35 88.18 1997-98 1625.75 1459.85 89.80 1998-99 1678.57 1484.8 88.46 1999-00 1503.47 1313.73 87.38 2000-01 880.49 778.63 88.43 2001-02 782.39 711.26 90.91 2002-03 753.35 703.4 93.37 2003-04 951.91 900.14 94.56 2004-05 1305.94 1266.48 96.98 2005-06 1842.64 1783.07 96.77 2006-07 2404.39 2362.6 98.26 2007-08 2953.58 2893.17 97.95 2008-09 4177.9 4050.21 96.94 2009-10 6332.19 6154.24 97.19 2010-11 8906.62 8722.15 97.93 2011-12 11481.05 10814.46 94.19 2012-13 12582.29 11528.15 91.62 EGR 19.16 20.27 0.93 Mean 2976.22 2784.07 90.43 CV 116.95 118.40 7.55 Source: Compiled from Annual Reports of SIDBI. 110

NON-FUND BASED FACILITY SIDBI also provides non-financial assistance in the form of letters of credit (both inland and foreign), guarantees, appraisal services etc. as per the requirements of the MSMEs. The inland letter of credit scheme was introduced in 2005-06 to provide benefit to SIDBI s domestic customers. The guarantee scheme was launched by SIDBI during the year 2007-08 for providing deferred payment guarantees for its eligible customers. The bank has disbursed Rs 678.76 crore against 907 letters of credit (both inland and foreign) from 2007-08 to 2010-11. Further, the bank has given guarantees with respect to 694 units and cumulatively disbursed Rs 196.15 crore during the period 2007-08 to 2012-13. Thus, schemes capture favourable response from MSME clients and is expected that it will become a major source of non-fund income in the recent years. Guarantee Scheme The bank provides Financial Guarantee, Performance Guarantee and Deferred Payment Guarantee. Eligibility The existing customers of SIDBI in MSME sector and service sector units with satisfactory track record are eligible under the scheme. The new customers of the bank in need of both fund based and non fund based limits are also eligible under the scheme. Stand alone facility (i.e. without term loan) is not considered by the bank. General Terms and Conditions Processing Charges: 0.25 per cent p.a. to 0.50 per cent p.a. of the guarantee amount / limit (negotiable) to be charged upfront before issue of the letter of sanction / renewal of guarantee / guarantee limit + applicable service tax. Guarantee Commission- Financial Guarantee: 1.50 per cent p.a. to 3 per cent p.a. + applicable service tax; performance guarantee: 1 per cent p.a. to 2 per cent p.a. + applicable service tax. 111

Margin: Minimum margin of 25 per cent of the Guarantee amount shall be stipulated for all Guarantees with Guarantee period (including the claim period) less than or equal to three years. For guarantees with guarantee period more than three years but less than 5 years, minimum margin of 50 per cent of the guarantee amount shall normally be stipulated. Margin would be in the form of FDR lien marked to SIDBI. Borrower would be required to place the FD with SIDBI. In case of performance guarantee, higher margin would be explored. Guarantees in favor of court or Government or any other person on behalf of borrower relating to payment of taxes, excise duty, custom duty or other Government dues, in dispute, would be issued only against 100 per cent cash margin. Loan Facilitation and Syndication Service Under this scheme, SIDBI develops a mechanism for new and existing units engaged in manufacturing and service sector in order to avoid any delay in sanction of loan. This facility is rendered by bank through tie ups by other banks, Rating Agencies (RAs) and Accredited Consultants (ACs). Need of Service This service is necessary to increase the flow of credit to MSME sector by reducing delay in completing procedural formalities. The ACs will provide information about the documents required by the bank so as to expedite the process of sanctioning of loan. In addition, rating by RAs (not compulsory) also enhances the validity and reliability of the information given by the applicant which in turn results in quick disposal of loans by banks. Thus, this scheme made the loan process easy and increases the acceptability of loan proposals by banks. Guidelines/Procedure of the Loan Facilitation and Syndication Scheme Firstly, ACs authorised by SIDBI will formulate Basic Information Memorandum (BIM) on the basis of information given by the MSME entrepreneurs. These consultants act as an intermediary between entrepreneur and commercial banks 112

and provide necessary information as required by either of them. These consultants guide entrepreneurs about availability of schemes and clear their queries, if any, about schemes at the earliest stage. Secondly, this BIM will be submitted by ACs to SIDBI with prior permission of MSME entrepreneur. At the third stage, if required, the bank will forward the proposal to RAs for rating. Then, on the basis of information obtained, the bank renders equity/ quasiequity support for growth oriented existing units, provides finance for service sector units and gives credit for energy efficiency and cleaner production processes to MSMEs. In other cases, the loan will be provided by Public Sector Banks having agreement with SIDBI. Thus, in a nutshell, SIDBI supports its entrepreneur throughout the process of loan processing. INDIRECT CREDIT The bank provides indirect credit through refinance assistance, equity assistance, micro finance assistance and resource support to PLIs or NBFCs and MFIs. These schemes are discussed below: REFINANCE ASSISTANCE SIDBI has been provided with Special Refinance Fund from Reserve Bank of India and Government of India for enhancing refinance facility to the MSME sector. In the Union Budget 2013-14, a fund support of Rs 10000 crore was allocated to SIDBI for enhancing its refinancing capability towards banks, SFCs etc. Since inception, the bank has been providing some special schemes like assistance under single window scheme, scheme for tiny projects, women entrepreneurs, composite loan scheme etc. But in 2005-06, the bank discontinued the process of providing assistance under some schemes and followed a policy of providing need-based finance. The refinance assistance has been provided by the bank through Primary Lending Institutions (PLIs) like State Financial Corporation s (SFCs), State Industrial Development Corporations (SIDCs), Scheduled Commercial Banks (SCBs), State Cooperative banks etc. for growth, expansion and modernisation of existing units and for setting up of new industrial projects. 113

Eligibility All MSME units having investment in Plant and Machinery upto Rs 1 crore (including ancillaries), small road transport operators in individual firm who owned maximum 20 vehicles are eligible for assistance. Further, service sector and infrastructure projects where cost of project does not exceed Rs 20 crore and medium sector units with investment in plant and machinery upto Rs 10 crore are also eligible for availing assistance under same. Further, the MSMEs incorporated as Public or Private Limited Company, Cooperatives, Partnership, Sole-Proprietorship, Hindu Undivided Family, units owned or managed by Trusts as defined in Section 2(h) of SIDBI s Act 1989 are also eligible for assistance under SIDBI s refinance. General Terms and Conditions The promoter s contribution lies between 10 per cent and 22.5 per cent. Debt-equity ratio is 3:1 for loan upto Rs 10 lac and 2:1 for others. Debt to service coverage ratio of 1.5-2:1 is considered as reasonable. Maximum amount of term loan is Rs 3 crore. The rate of interest is fixed by PLIs on case to case basis. The time limit for availing refinance is 24 months and the time limit is computed from the date of sanction of refinance by SIDBI. 100 per cent refinance is granted by SIDBI against term loans extended by PLIs to an individual unit. As the PLIs assume full credit risk in respect of loans granted by them, the security to be furnished by the borrowing industrial concern would depend on the terms and conditions under which the PLIs provide finance. Procedure for availing refinance The refinance assistance process has been decentralised and implemented by ROs/BOs of SIDBI. Refinance assistance to SFCs is centralised and controlled by DFID (Development Financing Institutions Division), SIDBI, Mumbai. 114

The refinance scheme in banking industry has been in operation for more than 35 years, hence, all the PLIs are well acquainted with the refinance procedure. The ROs/BOs of SIDBI provides refinance to all eligible PLIs for further assistance in respect to industrial projects set up in their particular state or union territory. Refinance procedure is categorised as Automatic Refinance Scheme (ARS) and Normal Refinance Scheme (NRS). Under ARS, refinance is provided to the commercial banks through simple process for loans upto Rs 2 crore per borrower. For loans above Rs 2 crore, refinance is provided under NRS through filling up of separate application form along with appraisal memorandum, sanction note of PLIs and the same are verified by SIDBI. Further, under ARS, a combined application will be submitted by the controlling office of the individual banks to SIDBI ROs/BOs for sanction and disbursement of loan. The application is to be submitted within six months from the date of disbursement of loan by the PLI. Under NRS, application is submitted for sanction of loan and after getting approval another application for disbursement of loan is submitted as per the requirement of the bank. The interest rate is paid quarterly and is applicable as prevailed on the date of first disbursement of loan by PLIs in individual case. Payment of principal is made by the PLI as and when they fall due. The bank s sanctions and disbursements under refinance assistance for MSME sector are presented in Table 5.3. Table 5.3 reveals that the total amount of sanctions under refinance increased from Rs 2052.2 crore in 1990-91 to Rs 31781.52 crore in 2012-13 and registered growth rate of 13.26 per cent during the period. The refinance disbursements increased from Rs 1561.5 crore in 1990-91 to Rs 22869.78 crore in 2012-13 and recorded a growth of 12.98 per cent over the period. The average amount of sanctions and disbursements were Rs 8969.76 crore and Rs 7239.23 crore during the period of study. The growth of disbursements showed a high degree of variation (CV=111.46) as compared to the total sanctions (CV=102.38) during the reference period. The loan disbursements as percentage of the sanctions were highest (99.09 per cent) in the year 2010-11 and lowest (40.44 per cent) in the year 2003-04. 115

Table 5.3 Sanctions and Disbursements under Refinance Assistance (Rs. in crore) Year Sanctions Disbursements Disbursements as per cent to Sanctions 1990-91 2052.2 1561.5 76.09 1991-92 2299 1634.5 71.10 1992-93 2026.8 1449.9 71.54 1993-94 1766.5 1390.9 78.74 1994-95 1672.2 1235.5 73.88 1995-96 2609.12 2123.73 81.40 1996-97 2450.97 1941.74 79.22 1997-98 3171.78 2640.16 83.24 1998-99 4743.77 3247.26 68.45 1999-00 6353.29 4137.85 65.13 2000-01 8087.99 4411.59 54.54 2001-02 6374.97 4144.44 65.01 2002-03 8034.74 4872.1 60.64 2003-04 4250.43 1719 40.44 2004-05 4419.19 2693.6 60.95 2005-06 5897.72 4598.75 77.98 2006-07 5430.14 5189.12 95.56 2007-08 10114.34 9153.57 90.50 2008-09 19260.98 18534.24 96.23 2009-10 19926.09 18584.82 93.27 2010-11 24337.42 24115.94 99.09 2011-12 29243.3 24252.3 82.93 2012-13 31781.52 22869.78 76.31 EGR 13.26 12.98 0.01 Mean 8969.76 7239.23 75.75 CV 102.38 111.46 18.91 Source: Compiled from Annual Reports of SIDBI. EQUITY ASSISTANCE The bank also provides equity/seed capital assistance under four schemes namely National Equity Fund (NEF) Scheme, seed capital, Self- Employment Scheme for Ex-Servicemen (SEMFEX) and Mahila Udyam Nidhi (MUN) scheme since 116

inception to provide support to those borrowers who have already availed project assistance from banks and State-level institutions. Bank has discontinued providing benefit under NEF scheme from May 1, 2007. The benefit under seed capital scheme has also been withdrawn from 1996-97. The amount of sanctions and disbursements under equity assistance scheme since inception to 2008-09 are shown in Table 5.4. Table 5.4 Sanctions and Disbursements under Equity Assistance (Rs. in crore) Year Sanctions Disbursements Disbursements as per cent to Sanctions 1990-91 7.1 5.5 77.46 1991-92 11.7 9.7 82.91 1992-93 9.9 8 80.81 1993-94 6 5.2 86.67 1994-95 11.4 9.3 81.58 1995-96 8.04 5.04 62.69 1996-97 22.72 16.83 74.08 1997-98 31.06 26.36 84.87 1998-99 24.83 22.17 89.29 1999-00 35.63 32.05 89.95 2000-01 20.22 16.85 83.33 2001-02 54.28 35.96 66.25 2002-03 54.76 41.61 75.99 2003-04 42.67 37.7 88.35 2004-05 43.97 39.97 90.90 2005-06 40.56 34.63 85.38 2006-07 34.41 29 84.28 2007-08 25.48 26.21 102.86 2008-09 8.8 9.18 104.32 EGR 1.20 2.89 1.67 Mean 25.98 21.65 83.79 CV 62.39 60.25 12.26 Source: Compiled from Annual Reports of SIDBI. 117

Table 5.4 shows that sanctions under equity assistance increased from Rs 7.1 crore in 1990-91 to Rs 8.8 crore in 2008-09 and recorded growth of 1.20 per cent during the period. The disbursements under the scheme increased from Rs 5.5 crore in 1990-91 to Rs 9.18 crore in 2008-09 and registered a growth of 2.89 per cent over the period. The overall average of sanctions and disbursements were Rs 25.98 crore and Rs 21.65 crore during the reference period. The growth of sanctions showed lower degree of consistency (CV=62.39) as compared to the total disbursements (CV=60.25) over the period of study. The equity disbursements as percentage to sanctions were maximum (104.32 per cent) in the year 2008-09 and minimum (62.69 per cent) in the year 1995-96. MICRO FINANCE ASSISTANCE Micro finance scheme has been regarded as an important tool for accelerating and strengthening the financial capacity of MFIs. SIDBI provides micro credit to the under privileged sections of the society i.e. women, minorities, backward communities and poor people in the unorganised sectors of the economy. Thus SIDBI meets the unmet credit demand of the millions of poor in the country through its micro finance institutions. Further, keeping in view the importance of micro finance, the GoI in the Union-Budget 2010-11 announced to create the India Microfinance Equity Fund (IMEF) of Rs 100 crore with SIDBI. The objective of creating this fund was to provide equity and quasi-equity support to small MFIs for enhancing growth and efficiency in their operations. The fund base has been increased to Rs. 200 crore by allocating further Rs.100 crore in the budget for Financial Year 2014. As per the emerging requirements, necessary changes are made in the existing schemes. General Terms and Conditions The minimum loan amount to an MFI has been increased to Rs 50 lac. The tenure of loan is 18-36 months including moratorium period of 3 months from the date of first disbursement. Term Deposit Receipts (TDRs) are considered as collateral security. 118

Micro Enterprise Loan The general terms and conditions for assistance under this scheme are: Minimum Rs 25 lac shall be provided to those MFIs having professional experience and competency to manage on-lending transactions. The loan shall be sanctioned as per the credit rating by professional agency and flexible security norms. Responsible Micro Finance Under this initiative, SIDBI has created a Lenders Forum in order to increase cooperation and to maintain better coordination among MFI lenders. This initiative increases the ability of MFI to invest and earn a higher return across the sector. SIDBI developed a list of five agencies to perform Code of Conduct Assessment (COCA) of assisted MFIs by providing them credit services, recovery of credit etc. In addition the bank creates awareness among MFIs through educating them on client protection principles and assists them to implement best practices under its smart campaign partnership. Salient Features of Micro Finance Programme This programme asserts the following activities: (a) Arranging Fixed Deposit for MFIs/NGOs The bank is providing micro-finance through its network of eligible MFIs/NGOs. To avail loan from SIDBI under this scheme, security deposits are required from MFIs/NGOs. For this purpose, the Government of India (GoI) will provide funds to SIDBI which is known as Portfolio Risk Fund. This fund will be utilised by SIDBI as a security deposit in return of the loan amount given to MFIs/NGOs. Then 10 per cent of the loan amount is retained by SIDBI as fixed deposit. The MFIs/NGOs contributes 25 per cent of the loan amount and balance 75 per cent of the loan amount would be met out of the funds given by GoI. The SIDBI will pay interest to the Government at the same rate as applicable to 119

NGOs/MFIs and the bank is responsible for the recovery of loan as well as interest amount. If loan was not recovered, the bank would adjust fixed deposit and interest accrued on 25 per cent of the loan amount given by MFIs/NGOs and then adjusts 75 per cent of security deposit contributed by GoI with its prior approval. In case of full recovery of loan, either Government contribution would be channelized further as a security or will be returned to the GoI with the prior approval of the Committee. (b) Training on Micro-Finance Programme The Government of India also assists SIDBI in meeting the training requirements of NGOs, MFIs, SHGs etc. to upscale their knowledge about Micro Finance Programmes. (c) Institution building for Intermediaries for identification of viable projects The GoI also help MFIs/NGOs through identification of intermediary organisations. These organisations provide guidelines to respective MFIs/NGOs in product identification, project report formulation, developing forward and backward linkages, market exposure etc. The bank has provided MF assistance to about 322 lac disadvantaged people especially women as on March 31, 2013. The total sanctions and disbursements under micro finance operations of SIDBI are shown in Table 5.5. Table 5.5 shows that micro finance sanctions made by SIDBI increased from Rs 9.9 crore in 1995-96 to Rs 852.14 crore in 2012-13 and registered growth of 29.96 per cent during the period. The micro finance disbursements also showed an increasing trend and the amount increased from Rs 4.71 crore in 1995-96 to Rs 323.03 crore in 2012-13 and recorded a growth of 28.24 per cent during the period. The average amount of micro finance sanctions and disbursements were Rs 528.43 crore and Rs 419.95 crore over the period. Further, the growth in disbursements showed a lower degree of consistency (CV=169.94) as compared to total sanctions (CV=149.76) during the reference period. The loan disbursements as percentage of the sanctions were highest (102.52 per cent) in the year 2003-04 and lowest (27.98 per cent) in the year 2011-12. 120

Table 5.5 Sanctions and Disbursements under Micro Finance Assistance (Rs. in Crore) Year Sanctions Disbursements Disbursements as per cent to Sanctions 1995-96 9.9 4.71 47.58 1996-97 13.61 6.79 49.89 1997-98 15.24 6.19 40.62 1998-99 23.65 9.39 39.70 1999-00 30.13 19.05 63.23 2000-01 44.02 25.79 58.59 2001-02 45.7 25.26 55.27 2002-03 46.36 37.04 79.90 2003-04 79.00 80.99 102.52 2004-05 196.09 152.41 77.72 2005-06 355.53 264.67 74.44 2006-07 419.99 379.02 90.25 2007-08 772.82 716.05 92.65 2008-09 1920.73 1746.19 90.91 2009-10 2972.35 2671.61 89.88 2010-11 858.93 851.43 99.13 2011-12 855.54 239.42 27.98 2012-13 852.14 323.03 37.91 EGR 29.96 28.24-1.33 Mean 528.43 419.95 67.68 CV 149.76 169.94 35.15 Source: Compiled from Annual Reports of SIDBI. RESOURCE SUPPORT TO INSTITUTIONS In order to facilitate larger flow of funds to the MSME sector, the SIDBI extends resource support to the various specialised institutions engaged in the promotion and development of this sector. The bank provides resource support to financial intermediaries through SFCs, SIDCs, Non-Banking Finance Companies (NBFCs), factoring companies, State Electricity Boards (SEBs) and other institutions related with MSME sector. The resource support to these institutions is provided for the purpose of hire purchase, leasing, financing, marketing activities and 121

technological development of the sector. Further, short-term loans to power corporations are extended to meet their credit requirements. The quantum of total sanctions and disbursements under resource support to various institutions extended by SIDBI are shown in Table 5.6. Table 5.6 Sanctions and Disbursements under Resource Support to Institutions 122 (Rs. in crore) Year Sanctions Disbursements Disbursements as per cent to Sanctions 1990-91 75 72.1 96.13 1991-92 32.8 24.1 73.48 1992-93 50 42.6 85.20 1993-94 174.3 123.8 71.03 1994-95 353.4 157.1 44.45 1995-96 1091 713.77 65.42 1996-97 1406.06 660.53 46.98 1997-98 1447.7 677.7 46.81 1998-99 1465.38 958.72 65.42 1999-00 1320.5 692.17 52.42 2000-01 792.24 437.54 55.23 2001-02 492 451.67 91.80 2002-03 1049.56 660.39 62.92 2003-04 1302.86 1009.36 77.47 2004-05 1603.97 1041.2 64.91 2005-06 893.5 956.82 107.09 2006-07 549.5 548.5 99.82 2007-08 825.83 651.83 78.93 2008-09 1224.33 1197.08 97.77 2009-10 2003.94 1501.6 74.93 2010-11 810 980 120.99 2011-12 1399.06 1620 115.79 2012-13 1988.11 4242.5 213.39 EGR 16.06 20.35 3.69 Mean 971.78 844.39 82.97 CV 60.89 101.93 43.26 Source: Compiled from Annual Reports of SIDBI.

Table 5.6 shows the amount of sanctions extended by SIDBI as resource support to various institutions increased from Rs 75 crore in 1990-91 to Rs 1988.11 crore in 2012-13 and recorded growth of 16.06 per cent during the period. The amount of disbursements under resource support also indicates an impressive growth during the period and the amount increased from Rs 72.1 crore in 1990-91 to Rs 4242.50 crore in 2012-13 and registered a growth of 20.35 per cent over the period. The average amount of sanctions and disbursements under the scheme were Rs 971.78 crore and Rs 844.39 crore during the period. The growth rate of disbursements was highest (20.35 per cent) as compared to sanctions (16.06 per cent) during the period of study. Further, a high degree of variation has been observed in growth of disbursements (CV=101.93) as compared to the sanctions (CV=60.89) during the reference period. The loan disbursements as percentage of the sanctions were maximum (213.39 per cent) in 2012-13 and minimum (44.45 per cent) in the year 1994-95. SANCTIONS UNDER DIRECT AND INDIRECT CREDIT TO TOTAL SANCTIONS The proportion of loan sanctions made by SIDBI under its direct and indirect assistance schemes out of the total amount of loan sanctioned are shown in Table 5.7. Table 5.7 reveals that the total amount of sanctions under direct credit assistance increased from Rs 274.40 crore in 1990-91 to Rs 24852.06 crore in 2012-13 and recorded growth rate of 22.73 per cent during the period. The total amount of sanctions under indirect credit assistance also increased from Rs 2134.30 crore in 1990-91 to Rs 34621.77 crore in 2012-13 and registered growth of 13.50 per cent during the period. The average amount of sanctions under direct credit and indirect credit were Rs 5345.71 crore and Rs 10376.55 crore during the reference period. It has been further observed that total sanctions of the bank increased from Rs 2408.7 crore in 1990-91 to Rs 59473.82 crore in 2012-13 and showed an impressive growth of 15.69 per cent during the period. The growth of sanctions under direct credit showed a high degree of variation (CV=123.30) as compared to the total sanctions 123

(CV=103.93) and sanctions under indirect credit (CV=96.38) over the period of study. The sanctions under direct credit as percentage of total sanctions were highest (56.47 per cent) in the year 1994-95 and lowest (11.39 per cent) in the year 1990-91. The sanctions under indirect credit as percentage of total sanctions were highest (88.61 per cent) in the year 1990-91 and lowest (43.35 per cent) in the year 1994-95. Table 5.7 Sanctions under Direct and Indirect Credit to Total Sanctions (Rs. in crore) Year Sanctions under Direct Credit Sanctions under Indirect Credit Total Sanctions 1990-91 274.40 (11.39) 2134.30 (88.61) 2408.7 1991-92 502.50 (17.66) 2343.50 (82.34) 2846 1992-93 821.70 (28.25) 2086.70 (71.75) 2908.4 1993-94 1407.30 (41.96) 1946.80 (58.04) 3354.1 1994-95 2653.80 (56.47) 2037.00 (43.35) 4699.3 1995-96 2347.50 (38.70) 3718.06 (61.30) 6065.56 1996-97 2591.96 (39.97) 3893.36 (60.03) 6485.32 1997-98 2818.38 (37.66) 4665.78 (62.34) 7484.16 1998-99 2622.21 (29.53) 6257.63 (70.47) 8879.84 1999-00 2525.19 (24.60) 7739.55 (75.40) 10264.74 2000-01 1876.13 (17.34) 8944.47 (82.66) 10820.6 2001-02 2058.57 (22.81) 6966.95 (77.19) 9025.52 2002-03 1718.18 (15.76) 9185.42 (84.24) 10903.6 2003-04 2571.32 (31.18) 5674.96 (68.82) 8246.28 2004-05 2827.38 (31.10) 6263.22 (68.90) 9090.6 2005-06 4787.52 (39.98) 7187.31 (60.02) 11974.83 2006-07 4668.24 (42.05) 6434.04 (57.95) 11102.28 2007-08 4425.91 (27.38) 11738.47 (72.62) 16164.38 2008-09 6773.17 (23.21) 22414.84 (76.79) 29188.01 2009-10 10618.96 (29.89) 24902.38 (70.11) 35521.34 2010-11 16207.37 (38.39) 26006.35 (61.61) 42213.72 2011-12 21001.57 (40.00) 31497.89 (60.00) 52499.47 2012-13 24852.06 (41.79) 34621.77 (58.21) 59473.82 EGR 22.73 13.50 15.69 Mean 5345.71 10376.55 15722.633 CV 123.30 96.38 103.93 Note: The figures given in parentheses show percentages to total sanctions. Source: Compiled from Annual Reports of SIDBI. 124

DISBURSEMENTS UNDER DIRECT AND INDIRECT CREDIT TO TOTAL DISBURSEMENTS The proportion of loan disbursements made by SIDBI under its direct and indirect assistance schemes out of the total amount of loan disbursed are shown in Table 5.8. Table 5.8 Disbursements under Direct and Indirect Credit to Total Disbursements Year Disbursements under Direct Credit 125 Disbursements under Indirect Credit (Rs. in crore) Total Disbursements 1990-91 199.40 (10.85) 1639.10 (89.15) 1838.5 1991-92 359.10 (17.71) 1668.30 (82.29) 2027.4 1992-93 645.30 (30.07) 1500.50 (69.93) 2145.8 1993-94 1151.40 (43.10) 1519.90 (56.90) 2671.3 1994-95 1982.80 (58.57) 1401.90 (41.41) 3385.3 1995-96 1953.58 (40.69) 2847.25 (59.31) 4800.83 1996-97 1958.80 (42.72) 2625.89 (57.28) 4584.69 1997-98 1890.29 (36.07) 3350.41 (63.93) 5240.7 1998-99 2047.63 (32.58) 4237.54 (67.42) 6285.17 1999-00 2082.38 (29.90) 4881.12 (70.10) 6963.5 2000-01 1549.64 (24.06) 4891.77 (75.94) 6441.41 2001-02 1262.00 (21.32) 4657.33 (78.68) 5919.33 2002-03 1178.27 (17.35) 5611.14 (82.65) 6789.41 2003-04 1567.10 (35.50) 2847.05 (64.50) 4414.15 2004-05 2260.65 (36.53) 3927.18 (63.47) 6187.83 2005-06 3244.88 (35.66) 5854.87 (64.34) 9099.75 2006-07 4079.73 (39.90) 6145.64 (60.10) 10225.37 2007-08 4539.55 (30.09) 10547.66 (69.91) 15087.21 2008-09 6811.15 (24.07) 21486.69 (75.93) 28297.84 2009-10 9159.94 (28.70) 22758.03 (71.30) 31917.97 2010-11 12848.52 (33.12) 25947.37 (66.88) 38795.89 2011-12 15048.66 (36.56) 26111.72 (63.44) 41160.38 2012-13 13084.54 (32.29) 27435.31 (67.71) 40519.85 EGR 20.95 13.66 15.09 Mean 3952.40 8430.16 12382.59 CV 110.56 107.80 107.80 Note: The figures given in parentheses show percentages to total disbursements. Source: Compiled from Annual Reports of SIDBI.

Table 5.8 reveals that the total amount of disbursements under direct credit assistance increased from Rs 199.40 crore in 1990-91 to Rs 13084.54 crore in 2012-13 and recorded growth rate of 20.95 per cent during the period. The total amount of disbursements under indirect credit assistance also increased from Rs 1639.10 crore in 1990-91 to Rs 27435.31 crore in 2012-13 and registered growth of 13.66 per cent during the period. The average amount of disbursements under direct credit and indirect credit were Rs 3952.40 crore and Rs 8430.16 crore during the reference period. It has been further observed that total disbursements of the bank increased from Rs 1838.5 crore in 1990-91 to Rs 40519.85 crore in 2012-13 and recorded growth of 15.09 per cent during the period. The growth of disbursements under direct credit showed a high degree of variation (CV=110.56) as compared to the disbursements under indirect credit and total disbursements (CV=107.80) over the period of study. The disbursements under direct credit as percentage of total disbursements were highest (58.57 per cent) in the year 1994-95 and lowest (10.85 per cent) in the year 1990-91. The disbursements under indirect credit as percentage of total disbursements were highest (89.15 per cent) in the year 1990-91 and lowest (41.41 per cent) in the year 1994-95. SIDBI AS NODAL AGENCY FOR GOVERNMENT SCHEMES Apart from providing direct and indirect assistance to eligible MSMEs, SIDBI also plays a predominant role by implementing various MSME sector schemes introduced by Government of India. SIDBI acts as a nodal agency for different subsidy schemes sponsored by various Ministries and initiated by GoI for encouraging MSME units in adopting modern technologies. A brief profile of the schemes is mentioned below: (i) TECHNOLOGY UPGRADATION FUND SCHEME (TUFS) With a view to upgrade and modernise the Indian Textile Industry, the Ministry of Textiles, GoI introduced Technology Upgradation Fund Scheme on April 1, 1999. SIDBI acts as a nodal agency and plays a key role in the implementation of the scheme. The new as well as existing segment of textile industry as per the definition of MSMED Act, 2006 are eligible for availing assistance under the scheme. 126