Indian banking system: Development banks: Small scale Industrial Development Bank of India (SIDBI)

The Small scale Industrial Development Bank of India (SIDBI) was set up in October 1989 under the Act of parliament as a wholly owned subsidiary of the IDBI. It is the central or apex or principal institution which oversees, co-ordinates and further strengthens various arrangements for providing financial and non-financial assistance to small-scale, tiny, and cottage industries.

SIDBI objectives are:

  • To initiate steps for technological up gradation and modernization of existing units
  • To expand channels for marketing of SSI sector products in India and abroad
  • To promote employment-oriented industries in semi-urban areas and to check migration of population to big cities.

It operates two funds: Small Industries Development Fund and Small Industries Development Assistance Fund. The operation of the former and of National Equity Fund which were earlier looked by IDBI is now handled by the SIDBI. Its financial assistance is channeled through the existing credit delivery system comprising NSIC, SFCs, SIDCs, SSIDCs, commercial banks, co-operative banks and RRBs. The total number of institutions eligible for assistance from SIDBI is 900. It discounts and rediscounts bills arising from the sale of machinery to small units; extends seed capital/soft loan assistance through National Equity Fund and through seed capital schemes of specialized lending institutions; refinance loans; and provide services like factoring, Leasing and so on.

The union budget 1996-97 envisaged a number of measures to develop small-scale sector with SIDBI as the focal point. They include:

  • SIDBI will now refinance the SFCs and commercial banks for modernization projects up to Rs 50 lakhs from unutilized corpus of about Rs 75 crore;
  • SIDBI’s refinance ceiling of Rs 50 lakhs for single window scheme of SFCs etc. for composite loans will be doubled to Rs 100 lakhs
  • SIDBI will participate in venture capital funds set up by public sector institutions as well as private companies up to 50 percent of the total corpus of the fund, provided such fund is dedicated to the financing of small-scale industry;
  • SIDBI will provide refinance lending institutions which are now permitted to lend to SSI units seeking ISO certification of quality.

Since its inception SIDBI has provided assistance to the entire SSIs sector including tiny, village, and cottage industries through suitable schemes tailored to meet the requirement of setting up of new products, expansions, diversifications, modernization, and rehabilitation. It has provided equity capital, domestic and foreign currency term loans, working capital finance, etc.

SIDBI has entered into MOU with many banks, governmental agencies, international agencies, R&D institutions, and industry associations for developing SSIs.

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