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2012-11-07

RBI allows SIDBI to raise funds for SMEs

The Reserve Bank of India (RBI) has allowed Small Industries Development Bank of India (SIDBI) to raise up to $500 million per annum (about Rs 2,700 crore) through External Commercial Borrowing (ECB) to finance Micro, Small and Medium Enterprises (MSMEs).

The Reserve Bank of India (RBI) has allowed Small Industries Development Bank of India (SIDBI) to raise up to $500 million per annum (about Rs 2,700 crore) through External Commercial Borrowing (ECB) to finance Micro, Small and Medium Enterprises (MSMEs).

In a notification, RBI today said, "It has been decided to include SIDBI as an eligible borrower for availing ECB for on-lending to MSME sector."

Funds raised by SIDBI in turn would be used for lending to the MSMEs directly either in INR or in foreign currency.

The move would help SIDBI to access low cost funds from overseas market where interest rates are relatively low. Thus, the MSME sector would also get an access to funds at lower interest rate.

The foreign currency risk would be hedged by SIDBI in full in case of on-lending to MSME sector in INR, the notification said.

"Availment of ECBs, including the outstanding ECBs, up to 50 per cent of their owned funds, for on-lending to MSME sector, will be under the automatic route and beyond 50 per cent of owned funds, will be under the approval route, subject to a ceiling of $500 million per financial year," it added.

The amended ECB policy shall come into force with an immediate effect and is subject to review based on the experience gained in this regard, as per the notification.

All other conditions of ECB, such as recognised lender, all- in-cost, average maturity, prepayment, refinancing of existing ECB and reporting arrangements would remain unchanged, it said.

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