Sitharaman pushes for increased direct finance to MSMEs through SIDBI

Finance Minister Nirmala Sitharaman has underlined the need to increase SIDBI's direct finance share for MSMEs to address their growing capital requirements. She also inaugurated a new branch of the Small Industries Development Bank of India (SIDBI) in Coimbatore.

According to SIDBI, Sitharaman highlighted that while SIDBI primarily engaged in indirect finance through banks, NBFCs, and MFIs, the financial needs of MSMEs require a more timely and cost-effective approach. To fulfill this demand, SIDBI initiated direct finance, currently accounting for 10 per cent of total MSME credit. The Minister has now suggested raising this share to 20 per cent and beyond.

Sitharaman also recognized the crucial role of MSMEs in the country’s economy, contributing significantly to GDP, exports, and employment. She stressed the importance of banks and financial institutions providing timely and adequate credit to support MSMEs. Additionally, she called for an inclusive approach to address issues like delayed payments and collateral requirements.

Earlier this year, Sitharaman had called upon banks to align regional rural banks (RRBs) with MSME clusters and expand rural branch networks in cluster areas identified by the Ministry of Micro, Small, and Medium Enterprises.

According to the Reserve Bank of India's latest data on bank credit deployment, the gross bank credit to MSMEs under priority sector lending in August 2023 reached INR 21.26 lakh crore, up from INR 20.86 lakh crore in July. This represented 14.2 per cent of India's total non-food credit of INR 149 lakh crore for the month.

SIDBI, which currently operates more than 90 branches, plans to exceed 100 branches shortly. Its Chairman and Managing Director, Sivasubramanian Ramann, highlighted the bank's fully digitized lending processes, enabling the provision of financial assistance within 48 hours. Moreover, SIDBI recently introduced a fully automated Straight Through Processing (STP) for online loan approvals of up to Rs 1 crore within a few hours.

In other development, the Codissia Defence Innovation and Atal Incubation Centre (CDIIC) in Coimbatore has entered into a partnership with the Small Industries Development Bank of India (SIDBI) to secure funding for startups under its incubation programme. SIDBI has earmarked INR 2 crore for this initiative, committing to invest up to 10 per cent of the startups' valuation recommended by CDIIC.

Finance Minister Nirmala Sitharaman, who inaugurated the second SIDBI branch in Coimbatore, also visited CDIIC and engaged with its startups. As per the CDIIC’s media release, Sitharaman had initially announced the establishment of CDIIC in 2019 when she served as the Defence Minister and had allocated funds for its creation.