Small Industries Development Bank of India (SIDBI) has come forward to fund small businesses with a short-term 90-day loan to tide over their immediate liquidity problems due to the lockdown, as per a report in the LiveMint. SIDBI has received ₹15,000 crore funding from RBI and the funds will be routed through the various financial bodies like banks, non-bank finance companies (NBFC) and even micro finance institutions (MFIs).
Small businesses have been the worst hit due to the coronavirus crisis as they have had to close down their operations and most of them operate on a monthly production-billing and collection cycle which has now been broken. They have been told to pay their employees without any work being executed. Some of their other regular expenses would also be unavoidable with zero revenue.
SIDBI has since sent a circular to all these financial institutions asking them to draw the funds from it for onward lending.
The scheme will be available for all eligible borrowers who have investment-grade ratings. There is no limit on the size of the organisation to qualify for this 90-day loan.
The NBFCs which can draw from this fund source for lending to their customers need to be registered with the Reserve Bank of India as an investment and credit company (ICC). The NBFC should have been in business for at least three years and hold assets worth at least ₹50 crore. The NBFC must have an external ranking of at least BBB- or higher as on March 31, 2020.
In the case of micro finance institutions, the rating requirement will be the same as that for the NBFCs and their minimum MFI grading must be MfR5.
The one thing missing from the circular is the ticket size of the loans or the maximum that an individual entity can borrow.
Both the government and the RBI have been working in tandem to address the bottom rung in the pyramid and to first ameliorate their woes. The RBI Governor did not mince words in his last media interaction when he stressed that the institutions like SIDBI will play a key role in helping the small industries. He said this time the RBI itself is coming forward to provide the funds for onward lending.