Introduction: Sidbi, India’s Small Industries Development Bank, plans a ₹10,000 crore rights issue in the next fiscal year to bolster equity capital. This aims to support its ambitious target of reaching ₹5 lakh crore in assets by March 2024, up from about ₹4 lakh crore in March 2023, as reported by PTI.
Rights Issue and Capital Expansion: Sidbi intends to conduct the rights issue in two ₹5,000-crore tranches next fiscal year. This approach seeks to augment the capital base by ₹10,000 crore, vital for accommodating the expected 25% surge in its balance sheet.
Government Support: Sidbi’s Chairman, Sivasubramanian Ramann, explained, “We recently sought additional capital from the Department of Financial Services. They engaged with the parliamentary standing committee, which has recommended injecting ₹10,000 crore in the next fiscal year to boost lending to SMEs.”
Direct Lending Goals: Sidbi aims to significantly increase direct lending’s share in its portfolio, targeting a boost from the current 14% to 25% within three years. Ramann, former capital markets regulator Sebi, aims for this quarter-of-the-total-book target during his tenure at Sidbi.
Capital Adequacy and Growth: Despite a fall in Sidbi’s capital adequacy ratio (CAR) from 24.28% in FY22 to 19.29% in FY23 and further to 15.63% by June 2023, it’s primarily due to the expanding portfolio’s effective capital utilization.
Comfortable Capitalization: Icra, the rating agency, deems Sidbi’s capitalization level comfortable despite the decline, supported by lower risk weights for the refinance book.
Impressive Growth Figures: Sidbi’s asset base surged 63%, from ₹2,47,379 crore in FY22 to ₹4,02,383 crore in FY23. Income soared 102% during the year, reaching ₹18,485 crore, resulting in a net income of ₹3,344 crore, a 71% increase from the previous year.
Leverage and Regulatory Limits: Sidbi’s leverage ratio rose from 9.22 times in March 2022 to 14.36 times in March 2023 but remained within the regulatory permissible limit of 18 times. Icra expects further borrowing but foresees leverage staying within the allowed limit until March 2024.
Government and Other Stakeholders: The central government owns a 20.8% stake, SBI holds 15.65%, and LIC owns 13.33%. Other public financial institutions and banks hold the remaining equity, all expected to subscribe to the rights issue.
Optimistic Loan Growth Outlook: Sidbi’s positive loan growth outlook stems from increasing demand for direct financing, which grew from 7% of its portfolio two years ago to 14%. RBI data shows commercial banks’ SME loan book at ₹25 lakh crore as of March 2023, within a total credit market of over ₹145 lakh crore.
In summary, Sidbi’s ₹10,000 crore rights issue strategy aims to fortify equity capital and meet surging SME financing demand.