MUMBAI, January 28: Many large public sector banks, including Bank of Baroda and Bank of India, have applied to the Small Industries Development Bank of India (SIDBI) for availing of refinance facility after a gap of nearly two years. Banks are availing of this hitherto un-used and costly refinance window to overcome the severe liquidity crunch affecting them after the recent Reserve Bank of India measures.SIDBI offers refinance to commercial banks -- among others -- against their term loan exposure to small scale industries sector. But commercial banks have not been drawing down on the refinance facility due to high refinance rates as well as due to their own excess liquidity. SIDBI officials said they have received many refinance requests during this week. However, they were unable to quantify the amount that each bank would be eligible.
According to sources, SIDBI is at present looking at the extent of refinance that it can provide to each of these banks. This is because, unlike earlier, this time,banks have applied in bulk for the entire amount of outstandings eligible for refinance. SIDBI has decided on a cut-off period of loans given six months prior to the application for considering the eligibility for refinance.
This would mean that banks will be able to obtain refinance for loans given to the SSI sector during the last six months.
Faced with the sudden and large demand for refinance, SIDBI is also planning to hike its prime lending rate (PLR) from the present 14 per cent. "We will decide on the new PLR in a day or two," said sources. It also provides refinance at the PLR. Banks are hoping to draw large amounts as refinance from SIDBI after the new eligibility critieria for the SSI sector, notified by the centre early this month, comes into effect. Under which, companies that have invested upto Rs 3 crore in plant and machinery come under the SSI sector. The earlier limit was Rs 60 lakh.
The new definition will lead to a manifold increase in companies that come under the SSI sector and thebanks will be able to avail of refinance against loans extended to these companies.
Earlier, banks applied for refinance from SIDBI immediatly after sanctioning loans to any SSI units. For more than one year, the banks had refused to draw down on the refinance facility as their own cost of fund was cheaper than SIDBI's refinance rate.
The reason for the sudden on-rush by the banks for the SIDBI refinance is the tight liquidity condition coupled with the narrowing down of other cheaper refinance window by the Reserve Bank.
SIDBI has various schemes of refinance against funding of small scale industries. All commercial banks, regional co-operative banks, state financial institutions and state industrial developments corporations are eligible for availing of SIDBI's refinance facility.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
