SIDBI Plans Rs 10,000 Crore Rights Issue for Fiscal Expansion

Small Industries Development Bank of India (SIDBI), a key player in SME loan refinancing, has unveiled plans to raise Rs 10,000 crore through a rights issue in the upcoming fiscal year. This strategic move is aimed at bolstering its equity capital as the institution anticipates an expansion of its assets, targeting Rs 5 lakh crore by March 2024 from its current standing at approximately Rs 4 lakh crore as of March 2023.

SIDBI’s growth outlook is primarily driven by the surging demand for direct financing, a segment that has grown significantly over the past two years, now constituting 14% of its loan portfolio compared to a mere 7% previously.

Ownership Structure:

The ownership landscape of SIDBI includes the central government with a 20.8% stake, the State Bank of India holding 15.65%, and Life Insurance Corporation at 13.33%. The remaining equity is distributed among various public financial institutions and banks. It is expected that these stakeholders will subscribe to the proposed rights issue.

Rights Issue Details:

SIDBI’s Chairman and Managing Director, Sivasubramanian Ramann, has disclosed that the rights issue will be executed in two tranches of Rs 5,000 crore each during the next fiscal year. This strategy will augment the institution’s capital base by a total of Rs 10,000 crore, providing vital support for its burgeoning balance sheet, which is projected to expand by a quarter from its current size.

Capital Adequacy and Growth:

While SIDBI’s capital adequacy ratio (CAR) witnessed a decline, dropping from 24.28% in FY22 to 19.29% in FY23 and further to 15.63% in the June 2023 quarter, this reduction is attributed to the efficient utilization of capital in expanding the bank’s portfolio.

Notably, rating agency ICRA views this level of capitalization as comfortable, mainly due to lower risk weights for the refinance book. In terms of growth, SIDBI’s asset base witnessed a remarkable 63% increase, surging from Rs 2,47,379 crore in FY22 to Rs 4,02,383 crore in FY23, accompanied by a substantial 102% rise in income, reaching Rs 18,485 crore. The bank posted a net income of Rs 3,344 crore, reflecting a robust 71% increase compared to the previous year.

Leverage and Regulatory Compliance:

ICRA points out that despite the substantial growth, SIDBI’s leverage remained within the permissible regulatory limit. Leveraging rose from 9.22 times as of March 2022 to 14.36 times as of March 2023. However, it is anticipated to remain within the allowed limit of 18 times until March 2024.

Direct Lending Focus:

Currently, direct lending represents only 14% of SIDBI’s operations, with the remaining 86% attributed to refinancing activities. However, Mr. Ramann anticipates a shift, with direct lending growing to account for 25% of SIDBI’s activities over the next three years.

SME Loan Landscape:

As of March 2023, the SME loan book of commercial banks in India stood at a substantial Rs 25 lakh crore, according to RBI data. This underscores the significance of SIDBI’s role in supporting small and medium-sized enterprises within the larger credit market, which totals slightly over Rs 145 lakh crore.

Find More Business News Here