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MSME loans: SIDBI sanctions Rs 650 cr to two small finance banks for lending to businesses in hinterland

Credit and Finance for MSMEs: SIDBI has extended the assistance from the Special Liquidity Facility of Rs 16,000 crore sanctioned to it by the Reserve Bank of India in June last year to help MSMEs overcome Covid-induced business challenges.

NBFCs have been urging the government for a refinance mechanism for regularity in sources of funds for them to lend to MSMEs. (Image: pexels)

Credit and Finance for MSMEs: Principal financial institution for financing and developing the MSME sector in India, Small Industries Development Bank of India (SIDBI) on Tuesday announced that it has sanctioned Rs 650 crore in financial assistance to two small finance banks — AU Small Finance Bank and Jana Small Finance Bank in order to enable credit access to more Covid-hit micro and small enterprises (MSEs) via low rated or unrated small non-banking financial companies (NBFCs) and microfinance institutions (MFIs). Through these SFBs, SIDBI would connect with MSE-lending small NBFCs and MFIs operating in remote geographies of the country. Of the total sanctioned amount, Rs 530 crore has already been released to these SFBs.  

SIDBI has extended the assistance from the Special Liquidity Facility of Rs 16,000 crore sanctioned to it by the Reserve Bank of India in June last year to help MSMEs overcome Covid-induced business challenges.

“These two SFBs have a fairly big portfolio of NBFCs. Under the special liquidity fund by RBI, SIDBI has formulated a scheme of double intermediation for enabling more credit to micro and small enterprises. Generally, in refinance, SIDBI extends credit to banks who then lends to a micro or small enterprise, but in double intermediation, small NBFCs in local geographies would extend loans to enterprises. These NBFCs would get it financed by the two SFBs. SIDBI, in turn, would extend loans to SFBs. Hence, to reach out to micro and small enterprise borrowers, there are two intermediaries,” a person aware of the scheme told Financial Express Online on anonymity. 

SIDBI reasoned the move, in a statement, saying that relatively smaller NBFCs and MFIs, which usually operate in remote geographies (including credit deficient, backward and aspirational districts), normally cater to the informal MSME sector. These enterprises are particularly new-to-credit businesses, small retail trade, micro credit and other small household businesses, etc., based in the hinterland. Small NBFCs and MFIs are able to access them due to next-door presence and accumulated knowledge about their clientele over a period of time in comparison to banks and larger NBFCs, it added.

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“The move is expected to benefit more than 40 small-sized NBFCs / MFIs which will help in mitigating the hardships being faced by such NBFCs/MFIs in garnering resources for their businesses,” said Sivasubramanian Ramann, Chairman & Managing Director, SIDBI. 

In fact, NBFCs too have been urging the government for a refinance mechanism for regularity in sources of funds for them to lend to MSMEs. NBFC body Finance Industry Development Council in its pre-budget memorandum had requested the government to have SIDBI as an institution to provide a refinance facility to NBFCs for onward lending to MSMEs and other appropriate sectors. 

However, gross non-performing assets (NPAs) of NBFCs are likely to increase by 25-300 basis points because of the new NPA recognition norms by RBI in November last year, Crisil had said in the same month. Across multiple segments including home loans, vehicle loans, gold loans, unsecured, MSME finance, wholesale finance, and microfinance, the extent of the impact on gross NPAs of NBFCs will be highest in unsecured loans category at 1.5 to 3 per cent followed by 1 to 3 per cent in MSME loans. 

“MSME loans will be one of the most impacted segments. There are dual issues that have impacted the MSME sector. The first and second waves of Covid impacted MSMEs and unsecured segments more while large corporates were much less impacted. So that’s one headwind MSMEs have been facing essentially because their balance sheets are not as strong as large corporates,” Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings had told Financial Express Online.

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